[G.R. No. 160039.

June 29, 2004]

RAYMUNDO
ODANI
SECOSA, EL
BUENASENSO
SY and DASSAD
WAREHOUSING and PORT SERVICES, INCORPORATED, petitioners, vs. HEIRS
OF ERWIN SUAREZ FRANCISCO, respondents.
DECISION
YNARES-SANTIAGO, J.:
This is a petition for review under Rule 45 of the Rules of Court seeking the reversal of
the decision[1] of the Court of Appeals dated February 27, 2003 in CA-G.R. CV No. 61868,
which affirmed in toto the June 19, 1998 decision[2] of Branch 20 of the Regional Trial Court of
Manila in Civil Case No. 96-79554.
The facts are as follows:
On June 27, 1996, at around 4:00 p.m., Erwin Suarez Francisco, an eighteen year old
third year physical therapy student of the Manila Central University, was riding a motorcycle
along Radial 10 Avenue, near the Veteran Shipyard Gate in the City of Manila. At the same
time, petitioner, Raymundo Odani Secosa, was driving an Isuzu cargo truck with plate
number PCU-253 on the same road. The truck was owned by petitioner, Dassad Warehousing
and Port Services, Inc.
Traveling behind the motorcycle driven by Francisco was a sand and gravel truck, which
in turn was being tailed by the Isuzu truck driven by Secosa. The three vehicles were
traversing the southbound lane at a fairly high speed. When Secosa overtook the sand and
gravel truck, he bumped the motorcycle causing Francisco to fall. The rear wheels of the
Isuzu truck then ran over Francisco, which resulted in his instantaneous death. Fearing for
his life, petitioner Secosa left his truck and fled the scene of the collision. [3]
Respondents, the parents of Erwin Francisco, thus filed an action for damages against
Raymond Odani Secosa, Dassad Warehousing and Port Services, Inc. and Dassads president,
El Buenasucenso Sy. The complaint was docketed as Civil Case No. 96-79554 of the RTC
of Manila, Branch 20.
On June 19, 1998, after a full-blown trial, the court a quo rendered a decision in favor of
herein respondents, the dispositive portion of which states:
WHEREFORE, premised on the foregoing, judgment is hereby rendered in favor of the
plaintiffs ordering the defendants to pay plaintiffs jointly and severally:
1. The sum of P55,000.00 as actual and compensatory damages;
2. The sum of P20,000.00 for the repair of the motorcycle;
3. The sum of P100,000.00 for the loss of earning capacity;
4. The sum of P500,000.00 as moral damages;
5. The sum of P50,000.00 as exemplary damages;
6. The sum of P50,000.00 as attorneys fees plus cost of suit.
SO ORDERED.
Petitioners appealed the decision to the Court of Appeals, which affirmed the appealed
decision in toto.[4]
Hence the present petition, based on the following arguments:
I.
THE COURT OF APPEALS SERIOUSLY ERRED WHEN IT AFFIRMED THE DECISION OF THE TRIAL
COURT THAT PETITIONER DASSAD DID NOT EXERCISE THE DILIGENCE OF A GOOD FATHER OF

A FAMILY IN THE SELECTION AND SUPERVISION OF ITS EMPLOYEES WHICH IS NOT IN

ACCORDANCE WITH ARTICLE 2180 OF THE NEW CIVIL CODE AND RELATED JURISPRUDENCE
ON THE MATTER.
II.
THE COURT OF APPEALS SERIOUSLY ERRED WHEN IT AFFIRMED THE DECISION OF THE TRIAL
COURT IN HOLDING PETITIONER EL BUENASENSO SY SOLIDARILY LIABLE WITH PETITIONERS
DASSAD AND SECOSA IN VIOLATION OF THE CORPORATION LAW AND RELATED
JURISPRUDENCE ON THE MATTER.
III.
THE JUDGMENT OF THE TRIAL COURT AS AFFIRMED BY THE COURT OF APPEALS AWARDING
P500,000.00 AS MORAL DAMAGES IS MANIFESTLY ABSURD, MISTAKEN AND UNJUST. [5]
The petition is partly impressed with merit.
On the issue of whether petitioner Dassad Warehousing and Port Services, Inc. exercised
the diligence of a good father of a family in the selection and supervision of its employees,
we find the assailed decision to be in full accord with pertinent provisions of law and
established jurisprudence.
Article 2176 of the Civil Code provides:
Whoever by act or omission causes damage to another, there being fault or negligence, is
obliged to pay for the damage done. Such fault or negligence, if there is no pre-existing
contractual relation between the parties, is called a quasi-delict and is governed by the
provisions of this Chapter.
On the other hand, Article 2180, in pertinent part, states:
The obligation imposed by article 2176 is demandable not only for ones own acts or
omissions, but also for those of persons for whom one is responsible x x x.
Employers shall be liable for the damages caused by their employees and household helpers
acting within the scope of their assigned tasks, even though the former are not engaged in
any business or industry x x x.
The responsibility treated of in this article shall cease when the persons herein mentioned
prove that they observed all the diligence of a good father of a family to prevent damage.
Based on the foregoing provisions, when an injury is caused by the negligence of an
employee, there instantly arises a presumption that there was negligence on the part of the
employer either in the selection of his employee or in the supervision over him after such
selection. The presumption, however, may be rebutted by a clear showing on the part of the
employer that it exercised the care and diligence of a good father of a family in the selection
and supervision of his employee. Hence, to evade solidary liability for quasi-delict committed
by an employee, the employer must adduce sufficient proof that it exercised such degree of
care.[6]
How does an employer prove that he indeed exercised the diligence of a good father of
a family in the selection and supervision of his employee? The case of Metro Manila Transit
Corporation v. Court of Appeals[7] is instructive:
In fine, the party, whether plaintiff or defendant, who asserts the affirmative of the issue has
the burden of presenting at the trial such amount of evidence required by law to obtain a
favorable judgment[8] . . . In making proof in its or his case, it is paramount that the best and
most complete evidence is formally entered.[9]

Coming now to the case at bar, while there is no rule which requires that testimonial
evidence, to hold sway, must be corroborated by documentary evidence, inasmuch as the
witnesses testimonies dwelt on mere generalities, we cannot consider the same as
sufficiently persuasive proof that there was observance of due diligence in the selection and
supervision of employees. Petitioners attempt to prove its deligentissimi patris familias in
the selection and supervision of employees through oral evidence must fail as it was unable
to buttress the same with any other evidence, object or documentary, which might obviate
the apparent biased nature of the testimony. [10]
Our view that the evidence for petitioner MMTC falls short of the required evidentiary
quantum as would convincingly and undoubtedly prove its observance of the diligence of a
good father of a family has its precursor in the underlying rationale pronounced in the earlier
case of Central Taxicab Corp. vs. Ex-Meralco Employees Transportation Co., et al., [11] set
amidst an almost identical factual setting, where we held that:
The failure of the defendant company to produce in court any record or other documentary
proof tending to establish that it had exercised all the diligence of a good father of a family
in the selection and supervision of its drivers and buses, notwithstanding the calls therefor
by both the trial court and the opposing counsel, argues strongly against its pretensions.
We are fully aware that there is no hard-and-fast rule on the quantum of evidence needed to
prove due observance of all the diligence of a good father of a family as would constitute a
valid defense to the legal presumption of negligence on the part of an employer or master
whose employee has by his negligence, caused damage to another. x x x (R)educing the
testimony of Albert to its proper proportion, we do not have enough trustworthy evidence
left to go by. We are of the considered opinion, therefore, that the believable evidence on the
degree of care and diligence that has been exercised in the selection and supervision of
Roberto Leon y Salazar, is not legally sufficient to overcome the presumption of negligence
against the defendant company.
The above-quoted ruling was reiterated in a recent case again involving the Metro
Manila Transit Corporation,[12] thus:
In the selection of prospective employees, employers are required to examine them as to
their qualifications, experience, and service records. [13] On the other hand, with respect to
the supervision of employees, employers should formulate standard operating procedures,
monitor their implementation, and impose disciplinary measures for breaches thereof. To
establish these factors in a trial involving the issue of vicarious liability, employers must
submit concrete proof, including documentary evidence.
In this case, MMTC sought to prove that it exercised the diligence of a good father of a family
with respect to the selection of employees by presenting mainly testimonial evidence on its
hiring procedure. According to MMTC, applicants are required to submit professional driving
licenses, certifications of work experience, and clearances from the National Bureau of
Investigation; to undergo tests of their driving skills, concentration, reflexes, and vision; and,
to complete training programs on traffic rules, vehicle maintenance, and standard operating
procedures during emergency cases.
xxxxxxxxx
Although testimonies were offered that in the case of Pedro Musa all these precautions were
followed, the records of his interview, of the results of his examinations, and of his service
were not presented. . . [T]here is no record that Musa attended such training programs and
passed the said examinations before he was employed. No proof was presented that Musa
did not have any record of traffic violations. Nor were records of daily inspections, allegedly

conducted by supervisors, ever presented. . . The failure of MMTC to present such

documentary proof puts in doubt the credibility of its witnesses.
Jurisprudentially, therefore, the employer must not merely present testimonial evidence
to prove that he observed the diligence of a good father of a family in the selection and
supervision of his employee, but he must also support such testimonial evidence with
concrete or documentary evidence. The reason for this is to obviate the biased nature of the
employers testimony or that of his witnesses.[14]
Applying the foregoing doctrines to the present case, we hold that petitioner Dassad
Warehousing and Port Services, Inc. failed to conclusively prove that it had exercised the
requisite diligence of a good father of a family in the selection and supervision of its
employees.
Edilberto Duerme, the lone witness presented by Dassad Warehousing and Port
Services, Inc. to support its position that it had exercised the diligence of a good father of a
family in the selection and supervision of its employees, testified that he was the one who
recommended petitioner Raymundo Secosa as a driver to Dassad Warehousing and Port
Services, Inc.; that it was his duty to scrutinize the capabilities of drivers; and that he
believed petitioner to be physically and mentally fit for he had undergone rigid training and
attended the PPA safety seminar.[15]
Petitioner Dassad Warehousing and Port Services, Inc. failed to support the testimony of
its lone witness with documentary evidence which would have strengthened its claim of due
diligence in the selection and supervision of its employees. Such an omission is fatal to its
position, on account of which, Dassad can be rightfully held solidarily liable with its copetitioner Raymundo Secosa for the damages suffered by the heirs of Erwin Francisco.
However, we find that petitioner El Buenasenso Sy cannot be held solidarily liable with
his co-petitioners. While it may be true that Sy is the president of petitioner Dassad
Warehousing and Port Services, Inc., such fact is not by itself sufficient to hold him solidarily
liable for the liabilities adjudged against his co-petitioners.
It is a settled precept in this jurisdiction that a corporation is invested by law with a
personality separate from that of its stockholders or members. [16] It has a personality
separate and distinct from those of the persons composing it as well as from that of any
other entity to which it may be related. Mere ownership by a single stockholder or by
another corporation of all or nearly all of the capital stock of a corporation is not in itself
sufficient ground for disregarding the separate corporate personality. [17] A corporations
authority to act and its liability for its actions are separate and apart from the individuals
who own it.[18]
The so-called veil of corporation fiction treats as separate and distinct the affairs of a
corporation and its officers and stockholders. As a general rule, a corporation will be looked
upon as a legal entity, unless and until sufficient reason to the contrary appears. When the
notion of legal entity is used to defeat public convenience, justify wrong, protect fraud, or
defend crime, the law will regard the corporation as an association of persons. [19] Also, the
corporate entity may be disregarded in the interest of justice in such cases as fraud that
may work inequities among members of the corporation internally, involving no rights of the
public or third persons. In both instances, there must have been fraud and proof of it. For the
separate juridical personality of a corporation to be disregarded, the wrongdoing must be
clearly and convincingly established.[20] It cannot be presumed.[21]
The records of this case are bereft of any evidence tending to show the presence of any
grounds enumerated above that will justify the piercing of the veil of corporate fiction such

as to hold the president of Dassad Warehousing and Port Services, Inc. solidarily liable with
it.
The Isuzu cargo truck which ran over Erwin Francisco was registered in the name of
Dassad Warehousing and Port Services, Inc., and not in the name of El Buenasenso
Sy. Raymundo Secosa is an employee of Dassad Warehousing and Port Services, Inc. and not
of El Buenasenso Sy. All these things, when taken collectively, point toward El Buenasenso
Sys exclusion from liability for damages arising from the death of Erwin Francisco.
Having both found Raymundo Secosa and Dassad Warehousing and Port Services, Inc.
liable for negligence for the death of Erwin Francisco on June 27, 1996, we now consider the
question of moral damages which his parents, herein respondents, are entitled to
recover. Petitioners assail the award of moral damages of P500,000.00 for being manifestly
absurd, mistaken and unjust. We are not persuaded.
Under Article 2206, the spouse, legitimate and illegitimate descendants and ascendants
of the deceased may demand moral damages for mental anguish for the death of the
deceased. The reason for the grant of moral damages has been explained in this wise:
. . . the award of moral damages is aimed at a restoration, within the limits possible, of the
spiritual status quo ante; and therefore, it must be proportionate to the suffering inflicted.
The intensity of the pain experienced by the relatives of the victim is proportionate to the
intensity of affection for him and bears no relation whatsoever with the wealth or means of
the offender.[22]
In the instant case, the spouses Francisco presented evidence of the searing pain that
they felt when the premature loss of their son was relayed to them. That pain was highly
evident in the testimony of the father who was forever deprived of a son, a son whose
untimely death came at that point when the latter was nearing the culmination of every
parents wish to educate their children. The death of Francis has indeed left a void in the lives
of the respondents. Antonio Francisco testified on the effect of the death of his son, Francis,
in this manner:
Q: (Atty. Balanag): What did you do when you learned that your son was killed
on June 27, 1996?
A: (ANTONIO FRANCISCO): I boxed the door and pushed the image of St. Nio telling
why this happened to us.
Q: Mr. Witness, how did you feel when you learned of the untimely death of your
son, Erwin Suares (sic)?
A: Masakit po ang mawalan ng anak. Its really hard for me, the thought that my son
is dead.
xxxxxxxxx
Q: How did your family react to the death of Erwin Suarez Francisco?
A: All of my family and relatives were felt (sic) sorrow because they knew that my
son is (sic) good.
Q: We know that it is impossible to put money terms(s) [on] the life of [a] human,
but since you are now in court and if you were to ask this court how much
would you and your family compensate? (sic)
A: Even if they pay me millions, they cannot remove the anguish of my son (sic). [23]
Moral damages are emphatically not intended to enrich a plaintiff at the expense of the
defendant. They are awarded to allow the former to obtain means, diversion or amusements

that will serve to alleviate the moral suffering he has undergone due to the defendants
culpable action and must, perforce, be proportional to the suffering inflicted. [24] We have
previously held as proper an award of P500,000.00 as moral damages to the heirs of a
deceased family member who died in a vehicular accident. In our 2002 decision in Metro
Manila Transit Corporation v. Court of Appeals, et al.,[25] we affirmed the award of moral
damages of P500,000.00 to the heirs of the victim, a mother, who died from injuries she
sustained when a bus driven by an employee of the petitioner hit her. In the case at bar, we
likewise affirm the portion of the assailed decision awarding the moral damages.
Since the petitioners did not question the other damages adjudged against them by
the court a quo, we affirm the award of these damages to the respondents.
WHEREFORE, the petition is DENIED. The assailed decision is AFFIRMED with
the MODIFICATION that petitioner El Buenasenso Sy is ABSOLVED from any liability adjudged
against his co-petitioners in this case.
Costs against petitioners.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Panganiban, Carpio, and Azcuna, JJ., concur.

G.R. No. 171805

May 30, 2011
PHILIPPINE NATIONAL BANK, Petitioner,
vs.
MERELO B. AZNAR; MATIAS B. AZNAR III; JOSE L. AZNAR (deceased), represented
by his heirs; RAMON A. BARCENILLA; ROSARIO T. BARCENILLA; JOSE B. ENAD
(deceased), represented by his heirs; and RICARDO GABUYA (deceased),
represented by his heirs, Respondents.
x - - - - - - - - - - - - - - - - - - - - - - -x
G.R. No. 172021
MERELO B. AZNAR and MATIAS B. AZNAR III, Petitioners,
vs.
PHILIPPINE NATIONAL BANK, Respondent.
DECISION
LEONARDO-DE CASTRO, J.:
Before the Court are two petitions for review on certiorari under Rule 45 of the Rules of Court
both seeking to annul and set aside the Decision1 dated September 29, 2005 as well as the
Resolution2 dated March 6, 2006 of the Court of Appeals in CA-G.R. CV No. 75744, entitled
"Merelo B. Aznar, Matias B. Aznar III, Jose L. Aznar (deceased) represented by his heirs,
Ramon A. Barcenilla (deceased) represented by his heirs, Rosario T. Barcenilla, Jose B. Enad
(deceased) represented by his heirs, and Ricardo Gabuya (deceased) represented by his
heirs v. Philippine National Bank, Jose Garrido and Register of Deeds of Cebu City." The
September 29, 2005 Decision of the Court of Appeals set aside the Decision 3 dated
November 18, 1998 of the Regional Trial Court (RTC) of Cebu City, Branch 17, in Civil Case
No. CEB-21511. Furthermore, it ordered the Philippine National Bank (PNB) to pay Merelo B.
Aznar; Matias B. Aznar III; Jose L. Aznar (deceased), represented by his heirs; Ramon A.
Barcenilla (deceased), represented by his heirs; Rosario T. Barcenilla; Jose B. Enad
(deceased), represented by his heirs; and Ricardo Gabuya (deceased), represented by his
heirs (Aznar, et al.), the amount of their lien based on the Minutes of the Special Meeting of
the Board of Directors4 (Minutes) of the defunct Rural Insurance and Surety Company, Inc.
(RISCO) duly annotated on the titles of three parcels of land, plus legal interests from the
time of PNBs acquisition of the subject properties until the finality of the judgment but
dismissing all other claims of Aznar, et al. On the other hand, the March 6, 2006 Resolution
of the Court of Appeals denied the Motion for Reconsideration subsequently filed by each
party.
The facts of this case, as stated in the Decision dated September 29, 2005 of the Court of
Appeals, are as follows:
In 1958, RISCO ceased operation due to business reverses. In plaintiffs desire to rehabilitate
RISCO, they contributed a total amount of P212,720.00 which was used in the purchase of
the three (3) parcels of land described as follows:
"A parcel of land (Lot No. 3597 of the Talisay-Minglanilla Estate, G.L.R.O. Record No. 3732)
situated in the Municipality of Talisay, Province of Cebu, Island of Cebu. xxx containing an
area of SEVENTY[-]EIGHT THOUSAND ONE HUNDRED EIGHTY[-]FIVE SQUARE METERS
(78,185) more or less. x x x" covered by Transfer Certificate of Title No. 8921 in the name of
Rural Insurance & Surety Co., Inc.";
"A parcel of land (Lot 7380 of the Talisay Minglanilla Estate, G.L.R.O. Record No. 3732),
situated in the Municipality of Talisay, Province of Cebu, Island of Cebu. xxx containing an
area of THREE HUNDRED TWENTY[-]NINE THOUSAND FIVE HUNDRED FORTY[-]SEVEN
SQUARE METERS (329,547), more or less. xxx" covered by Transfer Certificate of Title No.
8922 in the name of Rural Insurance & Surety Co., Inc." and
"A parcel of land (Lot 1323 of the subdivision plan Psd-No. 5988), situated in the District of
Lahug, City of Cebu, Island of Cebu. xxx containing an area of FIFTY[-]FIVE THOUSAND SIX

HUNDRED FIFTY[-]THREE (55,653) SQUARE METERS, more or less." covered by Transfer

Certificate of Title No. 24576 in the name of Rural Insurance & Surety Co., Inc."
After the purchase of the above lots, titles were issued in the name of RISCO. The amount
contributed by plaintiffs constituted as liens and encumbrances on the aforementioned
properties as annotated in the titles of said lots. Such annotation was made pursuant to the
Minutes of the Special Meeting of the Board of Directors of RISCO (hereinafter referred to as
the "Minutes") on March 14, 1961, pertinent portion of which states:
xxxx
3. The President then explained that in a special meeting of the stockholders previously
called for the purpose of putting up certain amount of P212,720.00 for the rehabilitation of
the Company, the following stockholders contributed the amounts indicated opposite their
names:
CONTRIBUTED SURPLUS
MERELO B. AZNAR

P50,000.00

MATIAS B. AZNAR

50,000.00

JOSE L. AZNAR

27,720.00

RAMON A. BARCENILLA

25,000.00

ROSARIO T. BARCENILLA

25,000.00

JOSE B. ENAD

17,500.00

RICARDO GABUYA

17,500.00
212,720.00

xxxx
And that the respective contributions above-mentioned shall constitute as their lien or
interest on the property described above, if and when said property are titled in the name of
RURAL INSURANCE & SURETY CO., INC., subject to registration as their adverse claim in
pursuance of the Provisions of Land Registration Act, (Act No. 496, as amended) until such
time their respective contributions are refunded to them completely.
x x x x"
Thereafter, various subsequent annotations were made on the same titles, including the
Notice of Attachment and Writ of Execution both dated August 3, 1962 in favor of herein
defendant PNB, to wit:
On TCT No. 8921 for Lot 3597:
Entry No. 7416-V-4-D.B. Notice of Attachment By the Provincial Sheriff of Cebu, Civil Case
No. 47725, Court of First Instance of Manila, entitled "Philippine National Bank, Plaintiff,
versus Iluminada Gonzales, et al., Defendants", attaching all rights, interest and
participation of the defendant Iluminada Gonzales and Rural Insurance & Surety Co., Inc. of
the two parcels of land covered by T.C.T. Nos. 8921, Attachment No. 330 and 185.
Date of Instrument August 3, 1962.
Date of Inscription August 3, 1962, 3:00 P.M.
Entry No. 7417-V-4-D.B. Writ of Execution By the Court of First Instance of Manila,
commanding the Provincial Sheriff of Cebu, of the lands and buildings of the defendants, to
make the sum of Seventy[-]One Thousand Three Hundred Pesos (P71,300.00) plus interest
etc., in connection with Civil Case No. 47725, File No. T-8021.
Date of Instrument July 21, 1962.
Date of Inscription August 3, 1962, 3:00 P.M.

Entry No. 7512-V-4-D.B. Notice of Attachment By the Provincial Sheriff of Cebu, Civil Case
Nos. IV-74065, 73929, 74129, 72818, in the Municipal Court of the City of Manila, entitled
"Jose Garrido, Plaintiff, versus Rural Insurance & Surety Co., Inc., et als., Defendants",
attaching all rights, interests and participation of the defendants, to the parcels of land
covered by T.C.T. Nos. 8921 & 8922 Attachment No. 186, File No. T-8921.
Date of the Instrument August 16, 1962.
Date of Inscription August 16, 1962, 2:50 P.M.
Entry No. 7513-V-4-D.B. Writ of Execution By the Municipal Court of the City of Manila,
commanding the Provincial Sheriff of Cebu, of the lands and buildings of the defendants, to
make the sum of Three Thousand Pesos (P3,000.00), with interest at 12% per annum from
July 20, 1959, in connection with Civil Case Nos. IV-74065, 73929, 74613 annotated above.
File No. T-8921
Date of the Instrument August 11, 1962.
Date of the Inscription August 16, 1962, 2:50 P.M.
On TCT No. 8922 for Lot 7380:
(Same as the annotations on TCT 8921)
On TCT No. 24576 for Lot 1328 (Corrected to Lot 1323-c per court order):
Entry No. 1660-V-7-D.B. Notice of Attachment by the Provincial Sheriff of Cebu, Civil Case
No. 47725, Court of First Instance of Manila, entitled "Philippine National Bank, Plaintiff,
versus, Iluminada Gonzales, et al., Defendants", attaching all rights, interest, and
participation of the defendants Iluminada Gonzales and Rural Insurance & Surety Co., Inc. of
the parcel of land herein described.
Attachment No. 330 & 185.
Date of Instrument August 3, 1962.
Date of Inscription August 3, 1962, 3:00 P.M.
Entry No. 1661-V-7-D.B. Writ of Execution by the Court of First Instance of Manila
commanding the Provincial Sheriff of Cebu, of the lands and buildings of the defendants to
make the sum of Seventy[-]One Thousand Three Hundred Pesos (P71,300.00), plus interest,
etc., in connection with Civil Case No. 47725.
File No. T-8921.
Date of the Instrument July 21, 1962.
Date of the Inscription August 3, 1962 3:00 P.M.
Entry No. 1861-V-7-D.B. - Notice of Attachment By the Provincial Sheriff of Cebu, Civil Case
Nos. IV-74065, 73929, 74129, 72613 & 72871, in the Municipal Court of the City of Manila,
entitled "Jose Garrido, Plaintiff, versus Rural Insurance & Surety Co., Inc., et als.,
Defendants", attaching all rights, interest and participation of the defendants, to the parcel
of land herein described.
Attachment No. 186.
File No. T-8921.
Date of the Instrument August 16, 1962.
Date of the Instription August 16, 1962 2:50 P.M.
Entry No. 1862-V-7-D.B. Writ of Execution by the Municipal Court of Manila, commanding
the Provincial Sheriff of Cebu, of the lands and buildings of the Defendants, to make the sum
of Three Thousand Pesos (P3,000.00), with interest at 12% per annum from July 20, 1959, in
connection with Civil Case Nos. IV-74065, 73929, 74129, 72613 & 72871 annotated above.
File No. T-8921.
Date of the Instrument August 11, 1962.
Date of the Inscription August 16, 1962 at 2:50 P.M.

As a result, a Certificate of Sale was issued in favor of Philippine National Bank, being the
lone and highest bidder of the three (3) parcels of land known as Lot Nos. 3597 and 7380,
covered by T.C.T. Nos. 8921 and 8922, respectively, both situated at Talisay, Cebu, and Lot
No. 1328-C covered by T.C.T. No. 24576 situated at Cebu City, for the amount of Thirty-One
Thousand Four Hundred Thirty Pesos (P31,430.00). Thereafter, a Final Deed of Sale dated
May 27, 1991 in favor of the Philippine National Bank was also issued and Transfer
Certificate of Title No. 24576 for Lot 1328-C (corrected to 1323-C) was cancelled and a new
certificate of title, TCT 119848 was issued in the name of PNB on August 26, 1991.
This prompted plaintiffs-appellees to file the instant complaint seeking the quieting of their
supposed title to the subject properties, declaratory relief, cancellation of TCT and
reconveyance with temporary restraining order and preliminary injunction. Plaintiffs alleged
that the subsequent annotations on the titles are subject to the prior annotation of their
liens and encumbrances. Plaintiffs further contended that the subsequent writs and
processes annotated on the titles are all null and void for want of valid service upon RISCO
and on them, as stockholders. They argued that the Final Deed of Sale and TCT No. 119848
are null and void as these were issued only after 28 years and that any right which PNB may
have over the properties had long become stale.
Defendant PNB on the other hand countered that plaintiffs have no right of action for
quieting of title since the order of the court directing the issuance of titles to PNB had
already become final and executory and their validity cannot be attacked except in a direct
proceeding for their annulment. Defendant further asserted that plaintiffs, as mere
stockholders of RISCO do not have any legal or equitable right over the properties of the
corporation. PNB posited that even if plaintiffs monetary lien had not expired, their only
recourse was to require the reimbursement or refund of their contribution. 51awphi1
Aznar, et al., filed a Manifestation and Motion for Judgment on the Pleadings 6 on October 5,
1998. Thus, the trial court rendered the November 18, 1998 Decision, which ruled against
PNB on the basis that there was an express trust created over the subject properties
whereby RISCO was the trustee and the stockholders, Aznar, et al., were the beneficiaries or
the cestui que trust. The dispositive portion of the said ruling reads:
WHEREFORE, judgment is hereby rendered as follows:
a) Declaring the Minutes of the Special Meeting of the Board of Directors of RISCO
approved on March 14, 1961 (Annex "E," Complaint) annotated on the titles to
subject properties on May 15, 1962 as an express trust whereby RISCO was a mere
trustee and the above-mentioned stockholders as beneficiaries being the true and
lawful owners of Lots 3597, 7380 and 1323;
b) Declaring all the subsequent annotations of court writs and processes, to wit: Entry
No. 7416-V-4-D.B., 7417-V-4-D.B., 7512-V-4-D.B., and 7513-V-4-D.B. in TCT No. 8921
for Lot 3597 and TCT No. 8922 for Lot 7380; Entry No. 1660-V-7-D.B., Entry No. 1661V-7-D.B., Entry No. 1861-V-7-D.B., Entry No. 1862-V-7-D.B., Entry No. 4329-V-7-D.B.,
Entry No. 3761-V-7-D.B. and Entry No. 26522 v. 34, D.B. on TCT No. 24576 for Lot
1323-C, and all other subsequent annotations thereon in favor of third persons, as
null and void;
c) Directing the Register of Deeds of the Province of Cebu and/or the Register of
Deeds of Cebu City, as the case may be, to cancel all these annotations mentioned in
paragraph b) above the titles;
d) Directing the Register of Deeds of the Province of Cebu to cancel and/or annul TCTs
Nos. 8921 and 8922 in the name of RISCO, and to issue another titles in the names of
the plaintiffs; and
e) Directing Philippine National Bank to reconvey TCT No. 119848 in favor of the
plaintiffs.7
PNB appealed the adverse ruling to the Court of Appeals which, in its September 29, 2005
Decision, set aside the judgment of the trial court. Although the Court of Appeals agreed
with the trial court that a judgment on the pleadings was proper, the appellate court opined

that the monetary contributions made by Aznar, et al., to RISCO can only be characterized
as a loan secured by a lien on the subject lots, rather than an express trust. Thus, it directed
PNB to pay Aznar, et al., the amount of their contributions plus legal interest from the time
of acquisition of the property until finality of judgment.lawphil The dispositive portion of the
decision reads:
WHEREFORE, premises considered, the assailed Judgment is hereby SET ASIDE.
A new judgment is rendered ordering Philippine National Bank to pay plaintiffs-appellees the
amount of their lien based on the Minutes of the Special Meeting of the Board of Directors
duly annotated on the titles, plus legal interests from the time of appellants acquisition of
the subject properties until the finality of this judgment.
All other claims of the plaintiffs-appellees are hereby DISMISSED. 8
Both parties moved for reconsideration but these were denied by the Court of Appeals.
Hence, each party filed with this Court their respective petitions for review on certiorari
under Rule 45 of the Rules of Court, which were consolidated in a Resolution 9 dated October
2, 2006.
In PNBs petition, docketed as G.R. No. 171805, the following assignment of errors were
raised:
I
THE COURT OF APPEALS ERRED IN AFFIRMING THE FINDINGS OF THE TRIAL COURT
THAT A JUDGMENT ON THE PLEADINGS WAS WARRANTED DESPITE THE EXISTENCE OF
GENUINE ISSUES OF FACTS ALLEGED IN PETITIONER PNBS ANSWER.
II
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THE RIGHT OF
RESPONDENTS TO REFUND OR REPAYMENT OF THEIR CONTRIBUTIONS HAD NOT
PRESCRIBED AND/OR THAT THE MINUTES OF THE SPECIAL MEETING OF THE BOARD
OF DIRECTORS OF RISCO CONSTITUTED AS AN EFFECTIVE ADVERSE CLAIM.
III
THE COURT OF APPEALS ERRED IN NOT CONSIDERING THE DISMISSAL OF THE
COMPLAINT ON GROUNDS OF RES JUDICATA AND LACK OF CAUSE OF ACTION
ALLEGED BY PETITIONER IN ITS ANSWER.10
On the other hand, Aznar, et al.s petition, docketed as G.R. No. 172021, raised the following
issue:
THE COURT OF APPEALS ERRED IN CONCLUDING THAT THE CONTRIBUTIONS MADE BY THE
STOCKHOLDERS OF RISCO WERE MERELY A LOAN SECURED BY THEIR LIEN OVER THE
PROPERTIES, SUBJECT TO REIMBURSEMENT OR REFUND, RATHER THAN AN EXPRESS
TRUST.11
Anent the first issue raised in G.R. No. 171805, PNB argues that a judgment on the pleadings
was not proper because its Answer,12 which it filed during the trial court proceedings of this
case, tendered genuine issues of fact since it did not only deny material allegations in Aznar,
et al.s Complaint13 but also set up special and affirmative defenses. Furthermore, PNB
maintains that, by virtue of the trial courts judgment on the pleadings, it was denied its
right to present evidence and, therefore, it was denied due process.
The contention is meritorious.
The legal basis for rendering a judgment on the pleadings can be found in Section 1, Rule 34
of the Rules of Court which states that "[w]here an answer fails to tender an issue, or
otherwise admits the material allegations of the adverse partys pleading, the court may, on
motion of that party, direct judgment on such pleading. x x x."
Judgment on the pleadings is, therefore, based exclusively upon the allegations appearing in
the pleadings of the parties and the annexes, if any, without consideration of any evidence
aliunde.14 However, when it appears that not all the material allegations of the complaint
were admitted in the answer for some of them were either denied or disputed, and the

defendant has set up certain special defenses which, if proven, would have the effect of
nullifying plaintiffs main cause of action, judgment on the pleadings cannot be rendered. 15
In the case at bar, the Court of Appeals justified the trial courts resort to a judgment on the
pleadings in the following manner:
Perusal of the complaint, particularly, Paragraph 7 thereof reveals:
"7. That in their desire to rehabilitate RISCO, the above-named stockholders contributed a
total amount of PhP212,720.00 which was used in the purchase of the above-described
parcels of land, which amount constituted liens and encumbrances on subject properties in
favor of the above-named stockholders as annotated in the titles adverted to above,
pursuant to the Minutes of the Special Meeting of the Board of Directors of RISCO approved
on March 14, 1961, a copy of which is hereto attached as Annex "E".
On the other hand, defendant in its Answer, admitted the aforequoted allegation with the
qualification that the amount put up by the stockholders was "used as part payment" for the
properties. Defendant further averred that plaintiffs liens and encumbrances annotated on
the titles issued to RISCO constituted as "loan from the stockholders to pay part of the
purchase price of the properties" and "was a personal obligation of RISCO and was thus not
a claim adverse to the ownership rights of the corporation." With these averments, We do
not find error on the part of the trial court in rendering a judgment on the pleadings. For one,
the qualification made by defendant in its answer is not sufficient to controvert the
allegations raised in the complaint. As to defendants contention that the money contributed
by plaintiffs was in fact a "loan" from the stockholders, reference can be made to the
Minutes of the Special Meeting of the Board of Directors, from which plaintiffs-appellees
anchored their complaint, in order to ascertain the true nature of their claim over the
properties. Thus, the issues raised by the parties can be resolved on the basis of their
respective pleadings and the annexes attached thereto and do not require further
presentation of evidence aliunde.16
However, a careful reading of Aznar, et al.s Complaint and of PNBs Answer would reveal
that both parties raised several claims and defenses, respectively, other than what was cited
by the Court of Appeals, which requires the presentation of evidence for resolution, to wit:
Complaint (Aznar, et al.)

Answer (PNB)

11. That these subsequent annotations on the

titles of the properties in question are subject to
the prior annotation of liens and encumbrances of
the above-named stockholders per Entry No. 458V-7-D.B. inscribed on TCT No. 24576 on May 15,
1962 and per Entry No. 6966-V-4-D.B. on TCT No.
8921 and TCT No. 8922 on May 15, 1962;

10) Par. 11 is denied as the loan

from the stockholders to pay part
of the purchase price of the
properties was a personal
obligation of RISCO and was thus
not a claim adverse to the
ownership rights of the
corporation;

12. That these writs and processes annotated on

the titles are all null and void for total want of
valid service upon RISCO and the above-named
stockholders considering that as early as
sometime in 1958, RISCO ceased operations as
earlier stated, and as early as May 15, 1962, the
liens and encumbrances of the above-named
stockholders were annotated in the titles of
subject properties;

11) Par. 12 is denied as in fact

notice to RISCO had been sent to
its last known address at Plaza
Goite, Manila;

13. That more particularly, the Final Deed of Sale 12) Par. 13 is denied for no law
(Annex "G") and TCT No. 119848 are null and void requires the final deed of sale to
as these were issued only after 28 years and 5
be executed immediately after the

months (in the case of the Final Deed of Sale) and

28 years, 6 months and 29 days (in the case of
TCT 119848) from the invalid auction sale on
December 27, 1962, hence, any right, if any,
which PNB had over subject properties had long
become stale;

end of the redemption period.

Moreover, another court of
competent jurisdiction has already
ruled that PNB was entitled to a
final deed of sale;

14. That plaintiffs continue to have possession of

subject properties and of their corresponding
titles, but they never received any process
concerning the petition filed by PNB to have TCT
24576 over Lot 1323-C surrendered and/or
cancelled;

13) Par. 14 is denied as plaintiffs

are not in actual possession of the
land and if they were, their
possession was as trustee for the
creditors of RISCO like PNB;

15. That there is a cloud created on the

aforementioned titles of RISCO by reason of the
annotate writs, processes and proceedings
caused by Jose Garrido and PNB which were
apparently valid or effective, but which are in
truth and in fact invalid and ineffective, and
prejudicial to said titles and to the rights of the
plaintiffs, which should be removed and the titles
quieted.17

14) Par. 15 is denied as the court

orders directing the issuance of
titles to PNB in lieu of TCT 24576
and TCT 8922 are valid judgments
which cannot be set aside in a
collateral proceeding like the
instant case.18

Furthermore, apart from refuting the aforecited material allegations made by Aznar, et al.,
PNB also indicated in its Answer the special and affirmative defenses of (a) prescription; (b)
res judicata; (c) Aznar, et al., having no right of action for quieting of title; (d) Aznar, et al.s
lien being ineffective and not binding to PNB; and (e) Aznar, et al.s having no personality to
file the suit.19
From the foregoing, it is indubitably clear that it was error for the trial court to render a
judgment on the pleadings and, in effect, resulted in a denial of due process on the part of
PNB because it was denied its right to present evidence. A remand of this case would
ordinarily be the appropriate course of action. However, in the interest of justice and in order
to expedite the resolution of this case which was filed with the trial court way back in 1998,
the Court finds it proper to already resolve the present controversy in light of the existence
of legal grounds that would dispose of the case at bar without necessity of presentation of
further evidence on the other disputed factual claims and defenses of the parties.
A thorough and comprehensive scrutiny of the records would reveal that this case should be
dismissed because Aznar, et al., have no title to quiet over the subject properties and their
true cause of action is already barred by prescription.
At the outset, the Court agrees with the Court of Appeals that the agreement contained in
the Minutes of the Special Meeting of the RISCO Board of Directors held on March 14, 1961
was a loan by the therein named stockholders to RISCO. We quote with approval the
following discussion from the Court of Appeals Decision dated September 29, 2005:
Careful perusal of the Minutes relied upon by plaintiffs-appellees in their claim, showed that
their contributions shall constitute as "lien or interest on the property" if and when said
properties are titled in the name of RISCO, subject to registration of their adverse claim
under the Land Registration Act, until such time their respective contributions are refunded
to them completely.
It is a cardinal rule in the interpretation of contracts that if the terms of a contract are clear
and leave no doubt upon the intention of the contracting parties, the literal meaning of its
stipulation shall control. When the language of the contract is explicit leaving no doubt as to
the intention of the drafters thereof, the courts may not read into it any other intention that
would contradict its plain import.

The term lien as used in the Minutes is defined as "a discharge on property usually for the
payment of some debt or obligation. A lien is a qualified right or a proprietary interest which
may be exercised over the property of another. It is a right which the law gives to have a
debt satisfied out of a particular thing. It signifies a legal claim or charge on property;
whether real or personal, as a collateral or security for the payment of some debt or
obligation." Hence, from the use of the word "lien" in the Minutes, We find that the money
contributed by plaintiffs-appellees was in the nature of a loan, secured by their liens and
interests duly annotated on the titles. The annotation of their lien serves only as collateral
and does not in any way vest ownership of property to plaintiffs.20(Emphases supplied.)
We are not persuaded by the contention of Aznar, et al., that the language of the subject
Minutes created an express trust.
Trust is the right to the beneficial enjoyment of property, the legal title to which is vested in
another. It is a fiduciary relationship that obliges the trustee to deal with the property for the
benefit of the beneficiary. Trust relations between parties may either be express or implied.
An express trust is created by the intention of the trustor or of the parties. An implied trust
comes into being by operation of law.21
Express trusts, sometimes referred to as direct trusts, are intentionally created by the direct
and positive acts of the settlor or the trustor - by some writing, deed, or will or oral
declaration. It is created not necessarily by some written words, but by the direct and
positive acts of the parties.22 This is in consonance with Article 1444 of the Civil Code, which
states that "[n]o particular words are required for the creation of an express trust, it being
sufficient that a trust is clearly intended."
In other words, the creation of an express trust must be manifested with reasonable
certainty and cannot be inferred from loose and vague declarations or from ambiguous
circumstances susceptible of other interpretations.23
No such reasonable certitude in the creation of an express trust obtains in the case at bar. In
fact, a careful scrutiny of the plain and ordinary meaning of the terms used in the Minutes
does not offer any indication that the parties thereto intended that Aznar, et al., become
beneficiaries under an express trust and that RISCO serve as trustor.
Indeed, we find that Aznar, et al., have no right to ask for the quieting of title of the
properties at issue because they have no legal and/or equitable rights over the properties
that are derived from the previous registered owner which is RISCO, the pertinent provision
of the law is Section 2 of the Corporation Code (Batas Pambansa Blg. 68), which states that
"[a] corporation is an artificial being created by operation of law, having the right of
succession and the powers, attributes and properties expressly authorized by law or incident
to its existence."
As a consequence thereof, a corporation has a personality separate and distinct from those
of its stockholders and other corporations to which it may be connected. 24 Thus, we had
previously ruled in Magsaysay-Labrador v. Court of Appeals25 that the interest of the
stockholders over the properties of the corporation is merely inchoate and therefore does
not entitle them to intervene in litigation involving corporate property, to wit:
Here, the interest, if it exists at all, of petitioners-movants is indirect, contingent, remote,
conjectural, consequential and collateral. At the very least, their interest is purely inchoate,
or in sheer expectancy of a right in the management of the corporation and to share in the
profits thereof and in the properties and assets thereof on dissolution, after payment of the
corporate debts and obligations.
While a share of stock represents a proportionate or aliquot interest in the property of the
corporation, it does not vest the owner thereof with any legal right or title to any of the
property, his interest in the corporate property being equitable or beneficial in nature.
Shareholders are in no legal sense the owners of corporate property, which is owned by the
corporation as a distinct legal person.26
In the case at bar, there is no allegation, much less any proof, that the corporate existence
of RISCO has ceased and the corporate property has been liquidated and distributed to the

stockholders. The records only indicate that, as per Securities and Exchange Commission
(SEC) Certification27 dated June 18, 1997, the SEC merely suspended RISCOs Certificate of
Registration beginning on September 5, 1988 due to its non-submission of SEC required
reports and its failure to operate for a continuous period of at least five years.
Verily, Aznar, et al., who are stockholders of RISCO, cannot claim ownership over the
properties at issue in this case on the strength of the Minutes which, at most, is merely
evidence of a loan agreement between them and the company. There is no indication or
even a suggestion that the ownership of said properties were transferred to them which
would require no less that the said properties be registered under their names. For this
reason, the complaint should be dismissed since Aznar, et al., have no cause to seek a
quieting of title over the subject properties.
At most, what Aznar, et al., had was merely a right to be repaid the amount loaned to RISCO.
Unfortunately, the right to seek repayment or reimbursement of their contributions used to
purchase the subject properties is already barred by prescription.
Section 1, Rule 9 of the Rules of Court provides that when it appears from the pleadings or
the evidence on record that the action is already barred by the statute of limitations, the
court shall dismiss the claim, to wit:
Defenses and objections not pleaded either in a motion to dismiss or in the answer are
deemed waived. However, when it appears from the pleadings or the evidence on record
that the court has no jurisdiction over the subject matter, that there is another action
pending between the same parties for the same cause, or that the action is barred by a prior
judgment or by statute of limitations, the court shall dismiss the claim. (Emphasis
supplied.)
In Feliciano v. Canoza,28 we held:
We have ruled that trial courts have authority and discretion to dismiss an action on the
ground of prescription when the parties pleadings or other facts on record show it to be
indeed time-barred x x x; and it may do so on the basis of a motion to dismiss, or an answer
which sets up such ground as an affirmative defense; or even if the ground is alleged after
judgment on the merits, as in a motion for reconsideration; or even if the defense has not
been asserted at all, as where no statement thereof is found in the pleadings, or where a
defendant has been declared in default. What is essential only, to repeat, is that the
facts demonstrating the lapse of the prescriptive period, be otherwise sufficiently
and satisfactorily apparent on the record; either in the averments of the plaintiffs
complaint, or otherwise established by the evidence.29 (Emphasis supplied.)
The pertinent Civil Code provision on prescription which is applicable to the issue at hand is
Article 1144(1), to wit:
The following actions must be brought within ten years from the time the right of action
accrues:
1. Upon a written contract;
2. Upon an obligation created by law;
3. Upon a judgment. (Emphasis supplied.)
Moreover, in Nielson & Co., Inc. v. Lepanto Consolidated Mining Co., 30 we held that the term
"written contract" includes the minutes of the meeting of the board of directors of a
corporation, which minutes were adopted by the parties although not signed by them, to wit:
Coming now to the question of prescription raised by defendant Lepanto, it is contended by
the latter that the period to be considered for the prescription of the claim regarding
participation in the profits is only four years, because the modification of the sharing
embodied in the management contract is merely verbal, no written document to that effect
having been presented. This contention is untenable. The modification appears in the
minutes of the special meeting of the Board of Directors of Lepanto held on August 21, 1940,
it having been made upon the authority of its President, and in said minutes the terms of
modification had been specified. This is sufficient to have the agreement considered, for the

purpose of applying the statute of limitations, as a written contract even if the minutes were
not signed by the parties (3 A.L.R., 2d, p. 831). It has been held that a writing containing the
terms of a contract if adopted by two persons may constitute a contract in writing even if
the same is not signed by either of the parties (3 A.L.R., 2d, pp. 812-813). Another authority
says that an unsigned agreement the terms of which are embodied in a document
unconditionally accepted by both parties is a written contract (Corbin on Contracts, Vol. I, p.
85).31
Applied to the case at bar, the Minutes which was approved on March 14, 1961 is considered
as a written contract between Aznar, et al., and RISCO for the reimbursement of the
contributions of the former. As such, the former had a period of ten (10) years from 1961
within which to enforce the said written contract. However, it does not appear that Aznar, et
al., filed any action for reimbursement or refund of their contributions against RISCO or even
against PNB. Instead the suit that Aznar, et al., brought before the trial court only on January
28, 1998 was one to quiet title over the properties purchased by RISCO with their
contributions. It is unmistakable that their right of action to claim for refund or payment of
their contributions had long prescribed. Thus, it was reversible error for the Court of Appeals
to order PNB to pay Aznar, et al., the amount of their liens based on the Minutes with legal
interests from the time of PNBs acquisition of the subject properties.
In view of the foregoing, it is unnecessary for the Court to pass upon the other issues raised
by the parties.
WHEREFORE, the petition of Aznar, et al., in G.R. No. 172021 is DENIED for lack of merit.
The petition of PNB in G.R. No. 171805 is GRANTED. The Complaint, docketed as Civil Case
No. CEB-21511, filed by Aznar, et al., is hereby DISMISSED. No costs.
SO ORDERED.

Republic Act No. 7042 - Foreign Investments Act of 1991

Section 3. Definitions. - As used in this Act:
a) The term "Philippine national" shall mean a citizen of the Philippines or a domestic
partnership or association wholly owned by citizens of the Philippines; or a
corporation organized under the laws of the Philippines of which at least sixty percent
(60%) of the capital stock outstanding and entitled to vote is owned and held by
citizens of the Philippines; or a trustee of funds for pension or other employee
retirement or separation benefits, where the trustee is a Philippine national and at
least sixty (60%) of the fund will accrue to the benefit of the Philippine nationals:
Provided, That where a corporation and its non-Filipino stockholders own stocks in a
Securities and Exchange Commission (SEC) registered enterprise, at least sixty
percent (60%) of the capital stocks outstanding and entitled to vote of both
corporations must be owned and held by citizens of the Philippines and at least sixty
percent (60%) of the members of the Board of Directors of both corporations must be
citizens of the Philippines, in order that the corporations shall be considered a
Philippine national;

G.R. No. 176579

October 9, 2012
HEIRS OF WILSON P. GAMBOA,* Petitioners,
vs.
FINANCE SECRETARYMARGARITO B. TEVES, FINANCE UNDERSECRETARYJOHN P.
SEVILLA, AND COMMISSIONER RICARDO ABCEDE OF THE PRESIDENTIAL
COMMISSION ON GOOD GOVERNMENT(PCGG) IN THEIR CAPACITIES AS CHAIR AND
MEMBERS, RESPECTIVELY, OF THE PRIVATIZATION COUNCIL, CHAIRMAN ANTHONI
SALIM OF FIRST PACIFIC CO., LTD. IN HIS CAPACITY AS DIRECTOR OF METRO
PACIFIC ASSET HOLDINGS INC., CHAIRMAN MANUEL V. PANGILINAN OF PHILIPPINE
LONG DISTANCE TELEPHONE COMPANY (PLDT) IN HIS CAPACITY AS MANAGING
DIRECTOR OF FIRST PACIFIC CO., LTD., PRESIDENT NAPOLEON L. NAZARENO OF
PHILIPPINE LONG DISTANCE TELEPHONE COMPANY, CHAIR FE BARIN OF THE
SECURITIES AND EXCHANGE COMMISSION, and PRESIDENT FRANCIS LIM OF THE
PHILIPPINE STOCK EXCHANGE, Respondents.
PABLITO V. SANIDAD and ARNO V. SANIDAD, Petitioner-in-Intervention.
RESOLUTION
CARPIO, J.:
This resolves the motions for reconsideration of the 28 June 2011 Decision filed by (1) the
Philippine Stock Exchange's (PSE) President, 1 (2) Manuel V. Pangilinan (Pangilinan),2 (3)
Napoleon L. Nazareno (Nazareno ),3and ( 4) the Securities and Exchange Commission
(SEC)4 (collectively, movants ).
The Office of the Solicitor General (OSG) initially filed a motion for reconsideration on
behalfofthe SEC,5 assailing the 28 June 2011 Decision. However, it subsequently filed a
Consolidated Comment on behalf of the State,6declaring expressly that it agrees with the
Court's definition of the term "capital" in Section 11, Article XII of the Constitution. During
the Oral Arguments on 26 June 2012, the OSG reiterated its position consistent with the
Court's 28 June 2011 Decision.
We deny the motions for reconsideration.
I.
Far-reaching implications of the legal issue justify
treatment of petition for declaratory relief as one for mandamus.
As we emphatically stated in the 28 June 2011 Decision, the interpretation of the term
"capital" in Section 11, Article XII of the Constitution has far-reaching implications to the
national economy. In fact, a resolution of this issue will determine whether Filipinos are
masters, or second-class citizens, in their own country. What is at stake here is whether
Filipinos or foreigners will have effective control of the Philippine national economy.
Indeed, if ever there is a legal issue that has far-reaching implications to the entire nation,
and to future generations of Filipinos, it is the threshold legal issue presented in this case.
Contrary to Pangilinans narrow view, the serious economic consequences resulting in the
interpretation of the term "capital" in Section 11, Article XII of the Constitution undoubtedly
demand an immediate adjudication of this issue. Simply put, the far-reaching
implications of this issue justify the treatment of the petition as one for
mandamus.7
In Luzon Stevedoring Corp. v. Anti-Dummy Board,8 the Court deemed it wise and expedient
to resolve the case although the petition for declaratory relief could be outrightly dismissed
for being procedurally defective. There, appellant admittedly had already committed a
breach of the Public Service Act in relation to the Anti-Dummy Law since it had been
employing non- American aliens long before the decision in a prior similar case. However,
the main issue in Luzon Stevedoring was of transcendental importance, involving the
exercise or enjoyment of rights, franchises, privileges, properties and businesses which only
Filipinos and qualified corporations could exercise or enjoy under the Constitution and the
statutes. Moreover, the same issue could be raised by appellant in an appropriate action.

Thus, in Luzon Stevedoring the Court deemed it necessary to finally dispose of the case for
the guidance of all concerned, despite the apparent procedural flaw in the petition.
The circumstances surrounding the present case, such as the supposed procedural defect of
the petition and the pivotal legal issue involved, resemble those in Luzon
Stevedoring. Consequently, in the interest of substantial justice and faithful adherence to
the Constitution, we opted to resolve this case for the guidance of the public and all
concerned parties.
II.
No change of any long-standing rule;
thus, no redefinition of the term "capital."
Movants contend that the term "capital" in Section 11, Article XII of the Constitution has long
been settled and defined to refer to the total outstanding shares of stock, whether voting or
non-voting. In fact, movants claim that the SEC, which is the administrative agency tasked to
enforce the 60-40 ownership requirement in favor of Filipino citizens in the Constitution and
various statutes, has consistently adopted this particular definition in its numerous opinions.
Movants point out that with the 28 June 2011 Decision, the Court in effect introduced a
"new" definition or "midstream redefinition"9 of the term "capital" in Section 11, Article XII of
the Constitution.
This is egregious error.
For more than 75 years since the 1935 Constitution, the Court has not interpreted or
defined the term "capital" found in various economic provisions of the 1935, 1973 and 1987
Constitutions. There has never been a judicial precedent interpreting the term "capital" in
the 1935, 1973 and 1987 Constitutions, until now. Hence, it is patently wrong and utterly
baseless to claim that the Court in defining the term "capital" in its 28 June 2011 Decision
modified, reversed, or set aside the purported long-standing definition of the term "capital,"
which supposedly refers to the total outstanding shares of stock, whether voting or nonvoting. To repeat, until the present case there has never been a Court ruling categorically
defining the term "capital" found in the various economic provisions of the 1935, 1973 and
1987 Philippine Constitutions.
The opinions of the SEC, as well as of the Department of Justice (DOJ), on the definition of
the term "capital" as referring to both voting and non-voting shares (combined total of
common and preferred shares) are, in the first place, conflicting and inconsistent. There is
no basis whatsoever to the claim that the SEC and the DOJ have consistently and uniformly
adopted a definition of the term "capital" contrary to the definition that this Court adopted in
its 28 June 2011 Decision.
In DOJ Opinion No. 130, s. 1985,10 dated 7 October 1985, the scope of the term "capital" in
Section 9, Article XIV of the 1973 Constitution was raised, that is, whether the term "capital"
includes "both preferred and common stocks." The issue was raised in relation to a stockswap transaction between a Filipino and a Japanese corporation, both stockholders of a
domestic corporation that owned lands in the Philippines. Then Minister of Justice Estelito P.
Mendoza ruled that the resulting ownership structure of the corporation would
beunconstitutional because 60% of the voting stock would be owned by Japanese while
Filipinos would own only 40% of the voting stock, although when the non-voting stock is
added, Filipinos would own 60% of the combined voting and non-voting stock. This
ownership structure is remarkably similar to the current ownership structure of
PLDT. Minister Mendoza ruled:
xxxx
Thus, the Filipino group still owns sixty (60%) of the entire subscribed capital stock (common
and preferred) while the Japanese investors control sixty percent (60%) of the common
(voting) shares.
It is your position that x x x since Section 9, Article XIV of the Constitution uses
the word "capital," which is construed "to include both preferred and common

shares" and "that where the law does not distinguish, the courts shall not
distinguish."
xxxx
In light of the foregoing jurisprudence, it is my opinion that the stock-swap transaction
in question may not be constitutionally upheld. While it may be ordinary corporate
practice to classify corporate shares into common voting shares and preferred non-voting
shares, any arrangement which attempts to defeat the constitutional purpose should be
eschewed. Thus, the resultant equity arrangement which would place ownership of
60%11 of the common (voting) shares in the Japanese group, while retaining 60%
of the total percentage of common and preferred shares in Filipino hands would
amount to circumvention of the principle of control by Philippine stockholders
that is implicit in the 60% Philippine nationality requirement in the Constitution.
(Emphasis supplied)
In short, Minister Mendoza categorically rejected the theory that the term "capital" in
Section 9, Article XIV of the 1973 Constitution includes "both preferred and common stocks"
treated as the same class of shares regardless of differences in voting rights and privileges.
Minister Mendoza stressed that the 60-40 ownership requirement in favor of Filipino citizens
in the Constitution is not complied with unless the corporation "satisfies the criterion of
beneficial ownership" and that in applying the same "the primordial consideration is
situs of control."
On the other hand, in Opinion No. 23-10 dated 18 August 2010, addressed to Castillo Laman
Tan Pantaleon & San Jose, then SEC General Counsel Vernette G. Umali-Paco applied
the Voting Control Test, that is, using only the voting stock to determine whether a
corporation is a Philippine national. The Opinion states:
Applying the foregoing, particularly the Control Test, MLRC is deemed as a Philippine
national because: (1) sixty percent (60%) of its outstanding capital stock entitled to
vote is owned by a Philippine national, the Trustee; and (2) at least sixty percent (60%) of
the ERF will accrue to the benefit of Philippine nationals. Still pursuant to the Control
Test, MLRCs investment in 60% of BFDCs outstanding capital stock entitled to
vote shall be deemed as of Philippine nationality, thereby qualifying BFDC to own
private land.
Further, under, and for purposes of, the FIA, MLRC and BFDC are both Philippine nationals,
considering that: (1) sixty percent (60%) of their respective outstanding capital
stock entitled to voteis owned by a Philippine national (i.e., by the Trustee, in the case of
MLRC; and by MLRC, in the case of BFDC); and (2) at least 60% of their respective board of
directors are Filipino citizens. (Boldfacing and italicization supplied)
Clearly, these DOJ and SEC opinions are compatible with the Courts interpretation of the 6040 ownership requirement in favor of Filipino citizens mandated by the Constitution for
certain economic activities. At the same time, these opinions highlight the conflicting,
contradictory, and inconsistent positions taken by the DOJ and the SEC on the definition of
the term "capital" found in the economic provisions of the Constitution.
The opinions issued by SEC legal officers do not have the force and effect of SEC rules and
regulations because only the SEC en banc can adopt rules and regulations. As expressly
provided in Section 4.6 of the Securities Regulation Code, 12 the SEC cannot delegate to any
of its individual Commissioner or staff the power to adopt any rule or regulation.
Further, under Section 5.1 of the same Code, it is the SEC as a collegial body, and
not any of its legal officers, that is empowered to issue opinions and approve
rules and regulations. Thus:
4.6. The Commission may, for purposes of efficiency, delegate any of its functions to any
department or office of the Commission, an individual Commissioner or staff member of the
Commission exceptits review or appellate authority and its power to adopt, alter and
supplement any rule or regulation.

The Commission may review upon its own initiative or upon the petition of any interested
party any action of any department or office, individual Commissioner, or staff member of
the Commission.
SEC. 5. Powers and Functions of the Commission.- 5.1. The Commission shall act with
transparency and shall have the powers and functions provided by this Code, Presidential
Decree No. 902-A, the Corporation Code, the Investment Houses Law, the Financing
Company Act and other existing laws. Pursuant thereto the Commission shall have, among
others, the following powers and functions:
xxxx
(g) Prepare, approve, amend or repeal rules, regulations and orders, and
issue opinions and provide guidance on and supervise compliance with such rules,
regulations and orders;
x x x x (Emphasis supplied)
Thus, the act of the individual Commissioners or legal officers of the SEC in issuing opinions
that have the effect of SEC rules or regulations is ultra vires. Under Sections 4.6 and 5.1(g)
of the Code, only the SEC en banc can "issue opinions" that have the force and effect of
rules or regulations. Section 4.6 of the Code bars the SEC en banc from delegating to any
individual Commissioner or staff the power to adopt rules or regulations. In short, any
opinion of individual Commissioners or SEC legal officers does not constitute a
rule or regulation of the SEC.
The SEC admits during the Oral Arguments that only the SEC en banc, and not any of its
individual commissioners or legal staff, is empowered to issue opinions which have the same
binding effect as SEC rules and regulations, thus:
JUSTICE CARPIO:
So, under the law, it is the Commission En Banc that can issue an
SEC Opinion, correct?
COMMISSIONER GAITE:13
Thats correct, Your Honor.
JUSTICE CARPIO:
Can the Commission En Banc delegate this function to an SEC officer?
COMMISSIONER GAITE:
Yes, Your Honor, we have delegated it to the General Counsel.
JUSTICE CARPIO:
It can be delegated. What cannot be delegated by the Commission En Banc to
a commissioner or an individual employee of the Commission?
COMMISSIONER GAITE:
Novel opinions that [have] to be decided by the En Banc...
JUSTICE CARPIO:
What cannot be delegated, among others, is the power to adopt or amend
rules and regulations, correct?
COMMISSIONER GAITE:
Thats correct, Your Honor.
JUSTICE CARPIO:
So, you combine the two (2), the SEC officer, if delegated that power,
can issue an opinion but that opinion does not constitute a rule or
regulation, correct?
COMMISSIONER GAITE:
Correct, Your Honor.
JUSTICE CARPIO:

So, all of these opinions that you mentioned they are not rules and
regulations, correct?
COMMISSIONER GAITE:
They are not rules and regulations.
JUSTICE CARPIO:
If they are not rules and regulations, they apply only to that particular
situation and will not constitute a precedent, correct?
COMMISSIONER GAITE:
Yes, Your Honor.14 (Emphasis supplied)
Significantly, the SEC en banc, which is the collegial body statutorily empowered to issue
rules and opinions on behalf of the SEC, has adopted even the Grandfather Rule in
determining compliance with the 60-40 ownership requirement in favor of Filipino citizens
mandated by the Constitution for certain economic activities. This prevailing SEC ruling,
which the SEC correctly adopted to thwart any circumvention of the required Filipino
"ownership and control," is laid down in the 25 March 2010 SEC en banc ruling
in Redmont Consolidated Mines, Corp. v. McArthur Mining, Inc., et al.,15 to wit:
The avowed purpose of the Constitution is to place in the hands of Filipinos the exploitation
of our natural resources. Necessarily, therefore, the Rule interpreting the
constitutional provision should not diminish that right through the legal fiction of
corporate ownership and control. But the constitutional provision, as interpreted and
practiced via the 1967 SEC Rules, has favored foreigners contrary to the command of the
Constitution. Hence, the Grandfather Rule must be applied to accurately determine
the actual participation, both direct and indirect, of foreigners in a corporation
engaged in a nationalized activity or business.
Compliance with the constitutional limitation(s) on engaging in nationalized activities must
be determined by ascertaining if 60% of the investing corporations outstanding capital
stock is owned by "Filipino citizens", or as interpreted, by natural or individual Filipino
citizens. If such investing corporation is in turn owned to some extent by another investing
corporation, the same process must be observed. One must not stop until the citizenships of
the individual or natural stockholders of layer after layer of investing corporations have been
established, the very essence of the Grandfather Rule.
Lastly, it was the intent of the framers of the 1987 Constitution to adopt the
Grandfather Rule. In one of the discussions on what is now Article XII of the present
Constitution, the framers made the following exchange:
MR. NOLLEDO. In Sections 3, 9 and 15, the Committee stated local or Filipino equity and
foreign equity; namely, 60-40 in Section 3, 60-40 in Section 9, and 2/3-1/3 in Section 15.
MR. VILLEGAS. That is right.
MR. NOLLEDO. In teaching law, we are always faced with the question: Where do we base
the equity requirement, is it on the authorized capital stock, on the subscribed capital stock,
or on the paid-up capital stock of a corporation? Will the Committee please enlighten me on
this?
MR. VILLEGAS. We have just had a long discussion with the members of the team from the
UP Law Center who provided us a draft. The phrase that is contained here which we adopted
from the UP draft is 60 percent of voting stock.
MR. NOLLEDO. That must be based on the subscribed capital stock, because unless declared
delinquent, unpaid capital stock shall be entitled to vote.
MR. VILLEGAS. That is right.
MR. NOLLEDO. Thank you. With respect to an investment by one corporation in another
corporation, say, a corporation with 60-40 percent equity invests in another corporation
which is permitted by the Corporation Code, does the Committee adopt the grandfather
rule?

MR. VILLEGAS. Yes, that is the understanding of the Committee.

MR. NOLLEDO. Therefore, we need additional Filipino capital?
MR. VILLEGAS. Yes. (Boldfacing and underscoring supplied; italicization in the original)
This SEC en banc ruling conforms to our 28 June 2011 Decision that the 60-40 ownership
requirement in favor of Filipino citizens in the Constitution to engage in certain economic
activities applies not only to voting control of the corporation, but also to the beneficial
ownership of the corporation. Thus, in our 28 June 2011 Decision we stated:
Mere legal title is insufficient to meet the 60 percent Filipinoowned "capital" required in the
Constitution. Full beneficial ownership of 60 percent of the outstanding capital
stock, coupled with 60 percent of the voting rights, is required. The legal and
beneficial ownership of 60 percent of the outstanding capital stock must rest in the hands of
Filipino nationals in accordance with the constitutional mandate. Otherwise, the corporation
is "considered as non-Philippine national[s]." (Emphasis supplied)
Both the Voting Control Test and the Beneficial Ownership Test must be applied to determine
whether a corporation is a "Philippine national."
The interpretation by legal officers of the SEC of the term "capital," embodied in various
opinions which respondents relied upon, is merely preliminary and an opinion only of such
officers. To repeat, any such opinion does not constitute an SEC rule or regulation. In fact,
many of these opinions contain a disclaimer which expressly states: "x x x the foregoing
opinion is based solely on facts disclosed in your query and relevant only to the particular
issue raised therein and shall not be used in the nature of a standing rule binding
upon the Commission in other cases whether of similar or dissimilar
circumstances."16 Thus, the opinions clearly make a caveat that they do not constitute
binding precedents on any one, not even on the SEC itself.
Likewise, the opinions of the SEC en banc, as well as of the DOJ, interpreting the law are
neither conclusive nor controlling and thus, do not bind the Court. It is hornbook doctrine
that any interpretation of the law that administrative or quasi-judicial agencies make is only
preliminary, never conclusive on the Court. The power to make a final interpretation of the
law, in this case the term "capital" in Section 11, Article XII of the 1987 Constitution, lies
with this Court, not with any other government entity.
In his motion for reconsideration, the PSE President cites the cases of National
Telecommunications Commission v. Court of Appeals17 and Philippine Long Distance
Telephone Company v. National Telecommunications Commission 18 in arguing that the Court
has already defined the term "capital" in Section 11, Article XII of the 1987 Constitution. 19
The PSE President is grossly mistaken. In both cases of National Telecommunications v.
Court of Appeals20 andPhilippine Long Distance Telephone Company v. National
Telecommunications Commission,21 the Court did not define the term "capital" as found in
Section 11, Article XII of the 1987 Constitution. In fact, these two cases never
mentioned, discussed or cited Section 11, Article XII of the Constitution or any of
its economic provisions,and thus cannot serve as precedent in the interpretation
of Section 11, Article XII of the Constitution. These two cases dealt solely with the
determination of the correct regulatory fees under Section 40(e) and (f) of the Public Service
Act, to wit:
(e) For annual reimbursement of the expenses incurred by the Commission in the
supervision of other public services and/or in the regulation or fixing of their rates, twenty
centavos for each one hundred pesos or fraction thereof, of the capital stock subscribed
or paid, or if no shares have been issued, of the capital invested, or of the property and
equipment whichever is higher.
(f) For the issue or increase of capital stock, twenty centavos for each one hundred pesos
or fraction thereof, of the increased capital. (Emphasis supplied)
The Courts interpretation in these two cases of the terms "capital stock subscribed or paid,"
"capital stock" and "capital" does not pertain to, and cannot control, the definition of the
term "capital" as used in Section 11, Article XII of the Constitution, or any of the economic

provisions of the Constitution where the term "capital" is found. The definition of the term
"capital" found in the Constitution must not be taken out of context. A careful reading of
these two cases reveals that the terms "capital stock subscribed or paid," "capital stock" and
"capital" were defined solely to determine the basis for computing the supervision and
regulation fees under Section 40(e) and (f) of the Public Service Act.
III.
Filipinization of Public Utilities
The Preamble of the 1987 Constitution, as the prologue of the supreme law of the land,
embodies the ideals that the Constitution intends to achieve. 22 The Preamble reads:
We, the sovereign Filipino people, imploring the aid of Almighty God, in order to build a just
and humane society, and establish a Government that shall embody our ideals and
aspirations, promote the common good, conserve and develop our patrimony, and
secure to ourselves and our posterity, the blessings of independence and democracy under
the rule of law and a regime of truth, justice, freedom, love, equality, and peace, do ordain
and promulgate this Constitution. (Emphasis supplied)
Consistent with these ideals, Section 19, Article II of the 1987 Constitution declares as State
policy the development of a national economy "effectively controlled" by Filipinos:
Section 19. The State shall develop a self-reliant and independent national
economy effectively controlled by Filipinos.
Fortifying the State policy of a Filipino-controlled economy, the Constitution decrees:
Section 10. The Congress shall, upon recommendation of the economic and planning
agency, when the national interest dictates, reserve to citizens of the Philippines or to
corporations or associations at least sixty per centum of whose capital is owned by such
citizens, or such higher percentage as Congress may prescribe, certain areas of investments.
The Congress shall enact measures that will encourage the formation and operation of
enterprises whose capital is wholly owned by Filipinos.
In the grant of rights, privileges, and concessions covering the national economy and
patrimony, the State shall give preference to qualified Filipinos.
The State shall regulate and exercise authority over foreign investments within its national
jurisdiction and in accordance with its national goals and priorities. 23
Under Section 10, Article XII of the 1987 Constitution, Congress may "reserve to citizens of
the Philippines or to corporations or associations at least sixty per centum of whose capital
is owned by such citizens, or such higher percentage as Congress may prescribe, certain
areas of investments." Thus, in numerous laws Congress has reserved certain areas of
investments to Filipino citizens or to corporations at least sixty percent of the "capital" of
which is owned by Filipino citizens. Some of these laws are: (1) Regulation of Award of
Government Contracts or R.A. No. 5183; (2) Philippine Inventors Incentives Act or R.A. No.
3850; (3) Magna Carta for Micro, Small and Medium Enterprises or R.A. No. 6977; (4)
Philippine Overseas Shipping Development Act or R.A. No. 7471; (5) Domestic Shipping
Development Act of 2004 or R.A. No. 9295; (6) Philippine Technology Transfer Act of 2009 or
R.A. No. 10055; and (7) Ship Mortgage Decree or P.D. No. 1521.
With respect to public utilities, the 1987 Constitution specifically ordains:
Section 11. No franchise, certificate, or any other form of authorization for the
operation of a public utility shall be granted except to citizens of the Philippines
or to corporations or associations organized under the laws of the Philippines, at
least sixty per centum of whose capital is owned by such citizens; nor shall such
franchise, certificate, or authorization be exclusive in character or for a longer period than
fifty years. Neither shall any such franchise or right be granted except under the condition
that it shall be subject to amendment, alteration, or repeal by the Congress when the
common good so requires. The State shall encourage equity participation in public utilities
by the general public. The participation of foreign investors in the governing body of any
public utility enterprise shall be limited to their proportionate share in its capital, and all the

executive and managing officers of such corporation or association must be citizens of the
Philippines. (Emphasis supplied)
This provision, which mandates the Filipinization of public utilities, requires that any form of
authorization for the operation of public utilities shall be granted only to "citizens of the
Philippines or to corporations or associations organized under the laws of the Philippines at
least sixty per centum of whose capital is owned by such citizens." "The provision is [an
express] recognition of the sensitive and vital position of public utilities both in
the national economy and for national security." 24
The 1987 Constitution reserves the ownership and operation of public utilities exclusively to
(1) Filipino citizens, or (2) corporations or associations at least 60 percent of whose "capital"
is owned by Filipino citizens. Hence, in the case of individuals, only Filipino citizens can
validly own and operate a public utility. In the case of corporations or associations, at least
60 percent of their "capital" must be owned by Filipino citizens. In other words, under
Section 11, Article XII of the 1987 Constitution, to own and operate a public utility
a corporations capital must at least be 60 percent owned by Philippine nationals.
IV.
Definition of "Philippine National"
Pursuant to the express mandate of Section 11, Article XII of the 1987 Constitution, Congress
enacted Republic Act No. 7042 or the Foreign Investments Act of 1991 (FIA), as amended,
which defined a "Philippine national" as follows:
SEC. 3. Definitions. - As used in this Act:
a. The term "Philippine national" shall mean a citizen of the Philippines; or a domestic
partnership or association wholly owned by citizens of the Philippines; or a corporation
organized under the laws of the Philippines of which at least sixty percent (60%)
of the capital stock outstanding and entitled to vote is owned and held by citizens
of the Philippines; or a corporation organized abroad and registered as doing business in
the Philippines under the Corporation Code of which one hundred percent (100%) of the
capital stock outstanding and entitled to vote is wholly owned by Filipinos or a trustee of
funds for pension or other employee retirement or separation benefits, where the trustee is
a Philippine national and at least sixty percent (60%) of the fund will accrue to the benefit of
Philippine nationals: Provided, That where a corporation and its non-Filipino stockholders
own stocks in a Securities and Exchange Commission (SEC) registered enterprise, at least
sixty percent (60%) of the capital stock outstanding and entitled to vote of each of both
corporations must be owned and held by citizens of the Philippines and at least sixty percent
(60%) of the members of the Board of Directors of each of both corporations must be
citizens of the Philippines, in order that the corporation, shall be considered a "Philippine
national." (Boldfacing, italicization and underscoring supplied)
Thus, the FIA clearly and unequivocally defines a "Philippine national" as a Philippine
citizen, or a domestic corporation at least "60% of the capital stock outstanding
and entitled to vote" is owned by Philippine citizens.
The definition of a "Philippine national" in the FIA reiterated the meaning of such term as
provided in its predecessor statute, Executive Order No. 226 or the Omnibus Investments
Code of 1987,25 which was issued by then President Corazon C. Aquino. Article 15 of this
Code states:
Article 15. "Philippine national" shall mean a citizen of the Philippines or a diplomatic
partnership or association wholly-owned by citizens of the Philippines; or a corporation
organized under the laws of the Philippines of which at least sixty per cent (60%)
of the capital stock outstanding and entitled to vote is owned and held by citizens
of the Philippines; or a trustee of funds for pension or other employee retirement or
separation benefits, where the trustee is a Philippine national and at least sixty per cent
(60%) of the fund will accrue to the benefit of Philippine nationals: Provided, That where a
corporation and its non-Filipino stockholders own stock in a registered enterprise, at least
sixty per cent (60%) of the capital stock outstanding and entitled to vote of both

corporations must be owned and held by the citizens of the Philippines and at least sixty per
cent (60%) of the members of the Board of Directors of both corporations must be citizens of
the Philippines in order that the corporation shall be considered a Philippine national.
(Boldfacing, italicization and underscoring supplied)
Under Article 48(3)26 of the Omnibus Investments Code of 1987, "no corporation x x x which
is not a Philippine national x x x shall do business
x x x in the Philippines x x x without first securing from the Board of Investments a written
certificate to the effect that such business or economic activity x x x would not conflict with
the Constitution or laws of the Philippines."27Thus, a "non-Philippine national" cannot own
and operate a reserved economic activity like a public utility. This means, of course, that
only a "Philippine national" can own and operate a public utility.
In turn, the definition of a "Philippine national" under Article 15 of the Omnibus Investments
Code of 1987 was a reiteration of the meaning of such term as provided in Article 14 of
the Omnibus Investments Code of 1981,28 to wit:
Article 14. "Philippine national" shall mean a citizen of the Philippines; or a domestic
partnership or association wholly owned by citizens of the Philippines; or a corporation
organized under the laws of the Philippines of which at least sixty per cent (60%)
of the capital stock outstanding and entitled to vote is owned and held by citizens
of the Philippines; or a trustee of funds for pension or other employee retirement or
separation benefits, where the trustee is a Philippine national and at least sixty per cent
(60%) of the fund will accrue to the benefit of Philippine nationals: Provided, That where a
corporation and its non-Filipino stockholders own stock in a registered enterprise, at least
sixty per cent (60%) of the capital stock outstanding and entitled to vote of both
corporations must be owned and held by the citizens of the Philippines and at least sixty per
cent (60%) of the members of the Board of Directors of both corporations must be citizens of
the Philippines in order that the corporation shall be considered a Philippine national.
(Boldfacing, italicization and underscoring supplied)
Under Article 69(3) of the Omnibus Investments Code of 1981, "no corporation x x x which is
not a Philippine national x x x shall do business x x x in the Philippines x x x without first
securing a written certificate from the Board of Investments to the effect that such business
or economic activity x x x would not conflict with the Constitution or laws of the
Philippines."29 Thus, a "non-Philippine national" cannot own and operate a reserved
economic activity like a public utility. Again, this means that only a "Philippine national" can
own and operate a public utility.
Prior to the Omnibus Investments Code of 1981, Republic Act No. 5186 30 or the Investment
Incentives Act, which took effect on 16 September 1967, contained a similar definition of a
"Philippine national," to wit:
(f) "Philippine National" shall mean a citizen of the Philippines; or a partnership or
association wholly owned by citizens of the Philippines; or a corporation organized under
the laws of the Philippines of which at least sixty per cent of the capital stock
outstanding and entitled to vote is owned and held by citizens of the Philippines;
or a trustee of funds for pension or other employee retirement or separation benefits, where
the trustee is a Philippine National and at least sixty per cent of the fund will accrue to the
benefit of Philippine Nationals: Provided, That where a corporation and its non-Filipino
stockholders own stock in a registered enterprise, at least sixty per cent of the capital stock
outstanding and entitled to vote of both corporations must be owned and held by the
citizens of the Philippines and at least sixty per cent of the members of the Board of
Directors of both corporations must be citizens of the Philippines in order that the
corporation shall be considered a Philippine National. (Boldfacing, italicization and
underscoring supplied)
Under Section 3 of Republic Act No. 5455 or the Foreign Business Regulations Act, which
took effect on 30 September 1968, if the investment in a domestic enterprise by nonPhilippine nationals exceeds 30% of its outstanding capital stock, such enterprise must

obtain prior approval from the Board of Investments before accepting such investment. Such
approval shall not be granted if the investment "would conflict with existing constitutional
provisions and laws regulating the degree of required ownership by Philippine nationals in
the enterprise."31 A "non-Philippine national" cannot own and operate a reserved economic
activity like a public utility. Again, this means that only a "Philippine national" can own and
operate a public utility.
The FIA, like all its predecessor statutes, clearly defines a "Philippine national" as a
Filipino citizen, or adomestic corporation "at least sixty percent (60%) of the capital
stock outstanding and entitled to vote" is owned by Filipino citizens. A domestic
corporation is a "Philippine national" only if at least 60% of its voting stock is owned by
Filipino citizens. This definition of a "Philippine national" is crucial in the present case
because the FIA reiterates and clarifies Section 11, Article XII of the 1987 Constitution, which
limits the ownership and operation of public utilities to Filipino citizens or to corporations or
associations at least 60% Filipino-owned.
The FIA is the basic law governing foreign investments in the Philippines, irrespective of the
nature of business and area of investment. The FIA spells out the procedures by which nonPhilippine nationals can invest in the Philippines. Among the key features of this law is the
concept of a negative list or the Foreign Investments Negative List. 32 Section 8 of the law
states:
SEC. 8. List of Investment Areas Reserved to Philippine Nationals [Foreign
Investment Negative List]. - The Foreign Investment Negative List shall have
two 2 component lists: A and B:
a. List A shall enumerate the areas of activities reserved to Philippine nationals
by mandate of the Constitution and specific laws.
b. List B shall contain the areas of activities and enterprises regulated pursuant to law:
1. which are defense-related activities, requiring prior clearance and authorization from the
Department of National Defense [DND] to engage in such activity, such as the manufacture,
repair, storage and/or distribution of firearms, ammunition, lethal weapons, military
ordinance, explosives, pyrotechnics and similar materials; unless such manufacturing or
repair activity is specifically authorized, with a substantial export component, to a nonPhilippine national by the Secretary of National Defense; or
2. which have implications on public health and morals, such as the manufacture and
distribution of dangerous drugs; all forms of gambling; nightclubs, bars, beer houses, dance
halls, sauna and steam bathhouses and massage clinics. (Boldfacing, underscoring and
italicization supplied)
Section 8 of the FIA enumerates the investment areas "reserved to Philippine
nationals." Foreign Investment Negative List A consists of "areas of activities
reserved to Philippine nationals by mandate of the Constitution and specific
laws," where foreign equity participation in any enterprise shall be limited to the
maximum percentage expressly prescribed by the Constitution and other specific
laws. In short, to own and operate a public utility in the Philippines one must be a
"Philippine national" as defined in the FIA. The FIA is abundant notice to foreign
investors to what extent they can invest in public utilities in the Philippines.
To repeat, among the areas of investment covered by the Foreign Investment Negative List A
is the ownership and operation of public utilities, which the Constitution expressly reserves
to Filipino citizens and to corporations at least 60% owned by Filipino citizens. In other
words, Negative List A of the FIA reserves the ownership and operation of public
utilities only to "Philippine nationals," defined in Section 3(a) of the FIA as "(1) a
citizen of the Philippines; x x x or (3) a corporation organized under the laws of the
Philippines of which at least sixty percent (60%) of the capital stock
outstanding and entitled to vote is owned and held by citizens of the Philippines;
or (4) a corporation organized abroad and registered as doing business in the Philippines
under the Corporation Code of which one hundred percent (100%) of the capital stock

outstanding and entitled to vote is wholly owned by Filipinos or a trustee of funds for
pension or other employee retirement or separation benefits, where the trustee is a
Philippine national and at least sixty percent (60%) of the fund will accrue to the benefit of
Philippine nationals."
Clearly, from the effectivity of the Investment Incentives Act of 1967 to the adoption of the
Omnibus Investments Code of 1981, to the enactment of the Omnibus Investments Code of
1987, and to the passage of the present Foreign Investments Act of 1991, or for more than
four decades, the statutory definition of the term "Philippine national" has been
uniform and consistent: it means a Filipino citizen, or a domestic corporation at
least 60% of the voting stock is owned by Filipinos. Likewise, these same statutes
have uniformly and consistently required that only "Philippine nationals" could
own and operate public utilities in the Philippines. The following exchange during the
Oral Arguments is revealing:
JUSTICE CARPIO:
Counsel, I have some questions. You are aware of the Foreign Investments Act
of 1991, x x x? And the FIA of 1991 took effect in 1991, correct? Thats over
twenty (20) years ago, correct?
COMMISSIONER GAITE:
Correct, Your Honor.
JUSTICE CARPIO:
And Section 8 of the Foreign Investments Act of 1991 states that []only
Philippine nationals can own and operate public utilities[], correct?
COMMISSIONER GAITE:
Yes, Your Honor.
JUSTICE CARPIO:
And the same Foreign Investments Act of 1991 defines a "Philippine national"
either as a citizen of the Philippines, or if it is a corporation at least sixty
percent (60%) of the voting stock is owned by citizens of the Philippines,
correct?
COMMISSIONER GAITE:
Correct, Your Honor.
JUSTICE CARPIO:
And, you are also aware that under the predecessor law of the Foreign
Investments Act of 1991, the Omnibus Investments Act of 1987, the same
provisions apply: x x x only Philippine nationals can own and operate a public
utility and the Philippine national, if it is a corporation, x x x sixty percent
(60%) of the capital stock of that corporation must be owned by citizens of the
Philippines, correct?
COMMISSIONER GAITE:
Correct, Your Honor.
JUSTICE CARPIO:
And even prior to the Omnibus Investments Act of 1987, under the Omnibus
Investments Act of 1981, the same rules apply: x x x only a Philippine national
can own and operate a public utility and a Philippine national, if it is a
corporation, sixty percent (60%) of its x x x voting stock, must be owned by
citizens of the Philippines, correct?
COMMISSIONER GAITE:
Correct, Your Honor.
JUSTICE CARPIO:

And even prior to that, under [the]1967 Investments Incentives Act and the
Foreign Company Act of 1968, the same rules applied, correct?
COMMISSIONER GAITE:
Correct, Your Honor.
JUSTICE CARPIO:
So, for the last four (4) decades, x x x, the law has been very
consistent only a Philippine national can own and operate a public
utility, and a Philippine national, if it is a corporation, x x x at least
sixty percent (60%) of the voting stock must be owned by citizens of
the Philippines, correct?
COMMISSIONER GAITE:
Correct, Your Honor.33 (Emphasis supplied)
Government agencies like the SEC cannot simply ignore Sections 3(a) and 8 of the FIA which
categorically prescribe that certain economic activities, like the ownership and operation of
public utilities, are reserved to corporations "at least sixty percent (60%) of the capital stock
outstanding and entitled to vote is owned and held by citizens of the Philippines." Foreign
Investment Negative List A refers to "activities reserved to Philippine nationals by mandate
of the Constitution and specific laws." The FIA is the basic statute regulating foreign
investments in the Philippines. Government agencies tasked with regulating or
monitoring foreign investments, as well as counsels of foreign investors, should start with
the FIA in determining to what extent a particular foreign investment is allowed in the
Philippines. Foreign investors and their counsels who ignore the FIA do so at their own peril.
Foreign investors and their counsels who rely on opinions of SEC legal officers that obviously
contradict the FIA do so also at their own peril.
Occasional opinions of SEC legal officers that obviously contradict the FIA should
immediately raise a red flag. There are already numerous opinions of SEC legal officers that
cite the definition of a "Philippine national" in Section 3(a) of the FIA in determining whether
a particular corporation is qualified to own and operate a nationalized or partially
nationalized business in the Philippines. This shows that SEC legal officers are not only
aware of, but also rely on and invoke, the provisions of the FIA in ascertaining the eligibility
of a corporation to engage in partially nationalized industries. The following are some of
such opinions:
1. Opinion of 23 March 1993, addressed to Mr. Francis F. How;
2. Opinion of 14 April 1993, addressed to Director Angeles T. Wong of the Philippine
Overseas Employment Administration;
3. Opinion of 23 November 1993, addressed to Messrs. Dominador Almeda and
Renato S. Calma;
4. Opinion of 7 December 1993, addressed to Roco Bunag Kapunan Migallos &
Jardeleza;
5. SEC Opinion No. 49-04, addressed to Romulo Mabanta Buenaventura Sayoc & De
Los Angeles;
6. SEC-OGC Opinion No. 17-07, addressed to Mr. Reynaldo G. David; and
7. SEC-OGC Opinion No. 03-08, addressed to Attys. Ruby Rose J. Yusi and Rudyard S.
Arbolado.
The SEC legal officers occasional but blatant disregard of the definition of the term
"Philippine national" in the FIA signifies their lack of integrity and competence in resolving
issues on the 60-40 ownership requirement in favor of Filipino citizens in Section 11, Article
XII of the Constitution.
The PSE President argues that the term "Philippine national" defined in the FIA should be
limited and interpreted to refer to corporations seeking to avail of tax and fiscal incentives
under investment incentives laws and cannot be equated with the term "capital" in Section
11, Article XII of the 1987 Constitution. Pangilinan similarly contends that the FIA and its

predecessor statutes do not apply to "companies which have not registered and obtained
special incentives under the schemes established by those laws."
Both are desperately grasping at straws. The FIA does not grant tax or fiscal incentives to
any enterprise. Tax and fiscal incentives to investments are granted separately under the
Omnibus Investments Code of 1987, not under the FIA. In fact, the FIA expressly repealed
Articles 44 to 56 of Book II of the Omnibus Investments Code of 1987, which articles
previously regulated foreign investments in nationalized or partially nationalized industries.
The FIA is the applicable law regulating foreign investments in nationalized or partially
nationalized industries. There is nothing in the FIA, or even in the Omnibus Investments
Code of 1987 or its predecessor statutes, that states, expressly or impliedly, that the FIA or
its predecessor statutes do not apply to enterprises not availing of tax and fiscal incentives
under the Code. The FIA and its predecessor statutes apply to investments in all domestic
enterprises, whether or not such enterprises enjoy tax and fiscal incentives under the
Omnibus Investments Code of 1987 or its predecessor statutes. The reason is quite
obvious mere non-availment of tax and fiscal incentives by a non-Philippine
national cannot exempt it from Section 11, Article XII of the Constitution
regulating foreign investments in public utilities. In fact, the Board of
Investments Primer on Investment Policies in the Philippines,34 which is given out to
foreign investors, provides:
PART III. FOREIGN INVESTMENTS WITHOUT INCENTIVES
Investors who do not seek incentives and/or whose chosen activities do not qualify for
incentives, (i.e., the activity is not listed in the IPP, and they are not exporting at least 70%
of their production) may go ahead and make the investments without seeking
incentives. They only have to be guided by the Foreign Investments Negative List
(FINL).
The FINL clearly defines investment areas requiring at least 60% Filipino ownership. All other
areas outside of this list are fully open to foreign investors. (Emphasis supplied)
V.
Right to elect directors, coupled with beneficial ownership,
translates to effective control.
The 28 June 2011 Decision declares that the 60 percent Filipino ownership required by the
Constitution to engage in certain economic activities applies not only to voting control of the
corporation, but also to the beneficial ownership of the corporation. To repeat, we
held:
Mere legal title is insufficient to meet the 60 percent Filipino-owned "capital" required in the
Constitution. Full beneficial ownership of 60 percent of the outstanding capital
stock, coupled with 60 percent of the voting rights, is required. The legal and
beneficial ownership of 60 percent of the outstanding capital stock must rest in the hands of
Filipino nationals in accordance with the constitutional mandate. Otherwise, the corporation
is "considered as non-Philippine national[s]." (Emphasis supplied)
This is consistent with Section 3 of the FIA which provides that where 100% of the capital
stock is held by "a trustee of funds for pension or other employee retirement or separation
benefits," the trustee is a Philippine national if "at least sixty percent (60%) of the fund will
accrue to the benefit of Philippine nationals." Likewise, Section 1(b) of the Implementing
Rules of the FIA provides that "for stocks to be deemed owned and held by Philippine
citizens or Philippine nationals, mere legal title is not enough to meet the required Filipino
equity. Full beneficial ownership of the stocks, coupled with appropriate voting
rights, is essential."
Since the constitutional requirement of at least 60 percent Filipino ownership applies not
only to voting control of the corporation but also to the beneficial ownership of the
corporation, it is therefore imperative that such requirement apply uniformly and across the
board to all classes of shares, regardless of nomenclature and category, comprising the
capital of a corporation. Under the Corporation Code, capital stock 35 consists of all classes of

shares issued to stockholders, that is, common shares as well as preferred shares, which
may have different rights, privileges or restrictions as stated in the articles of
incorporation.36
The Corporation Code allows denial of the right to vote to preferred and redeemable shares,
but disallows denial of the right to vote in specific corporate matters. Thus, common shares
have the right to vote in the election of directors, while preferred shares may be denied such
right. Nonetheless, preferred shares, even if denied the right to vote in the election of
directors, are entitled to vote on the following corporate matters: (1) amendment of articles
of incorporation; (2) increase and decrease of capital stock; (3) incurring, creating or
increasing bonded indebtedness; (4) sale, lease, mortgage or other disposition of
substantially all corporate assets; (5) investment of funds in another business or corporation
or for a purpose other than the primary purpose for which the corporation was organized; (6)
adoption, amendment and repeal of by-laws; (7) merger and consolidation; and (8)
dissolution of corporation.37
Since a specific class of shares may have rights and privileges or restrictions different from
the rest of the shares in a corporation, the 60-40 ownership requirement in favor of Filipino
citizens in Section 11, Article XII of the Constitution must apply not only to shares with
voting rights but also to shares without voting rights. Preferred shares, denied the right to
vote in the election of directors, are anyway still entitled to vote on the eight specific
corporate matters mentioned above. Thus, if a corporation, engaged in a partially
nationalized industry, issues a mixture of common and preferred non-voting
shares, at least 60 percent of the common shares and at least 60 percent of the
preferred non-voting shares must be owned by Filipinos. Of course, if a corporation
issues only a single class of shares, at least 60 percent of such shares must necessarily be
owned by Filipinos. In short, the 60-40 ownership requirement in favor of Filipino
citizens must apply separately to each class of shares, whether common,
preferred non-voting, preferred voting or any other class of shares. This uniform
application of the 60-40 ownership requirement in favor of Filipino citizens clearly breathes
life to the constitutional command that the ownership and operation of public utilities shall
be reserved exclusively to corporations at least 60 percent of whose capital is Filipinoowned. Applying uniformly the 60-40 ownership requirement in favor of Filipino citizens to
each class of shares, regardless of differences in voting rights, privileges and restrictions,
guarantees effective Filipino control of public utilities, as mandated by the Constitution.
Moreover, such uniform application to each class of shares insures that the "controlling
interest" in public utilities always lies in the hands of Filipino citizens. This addresses and
extinguishes Pangilinans worry that foreigners, owning most of the non-voting shares, will
exercise greater control over fundamental corporate matters requiring two-thirds or majority
vote of all shareholders.
VI.
Intent of the framers of the Constitution
While Justice Velasco quoted in his Dissenting Opinion 38 a portion of the deliberations of the
Constitutional Commission to support his claim that the term "capital" refers to the total
outstanding shares of stock, whether voting or non-voting, the following excerpts of the
deliberations reveal otherwise. It is clear from the following exchange that the term "capital"
refers to controlling interest of a corporation, thus:
MR. NOLLEDO. In Sections 3, 9 and 15, the Committee stated local or Filipino equity and
foreign equity; namely, 60-40 in Section 3, 60-40 in Section 9 and 2/3-1/3 in Section 15.
MR. VILLEGAS. That is right.
MR. NOLLEDO. In teaching law, we are always faced with this question: "Where do we base
the equity requirement, is it on the authorized capital stock, on the subscribed capital stock,
or on the paid-up capital stock of a corporation"? Will the Committee please enlighten me on
this?

MR. VILLEGAS. We have just had a long discussion with the members of the team from the
UP Law Center who provided us a draft. The phrase that is contained here which we
adopted from the UP draft is "60 percent of voting stock."
MR. NOLLEDO. That must be based on the subscribed capital stock, because unless declared
delinquent, unpaid capital stock shall be entitled to vote.
MR. VILLEGAS. That is right.
MR. NOLLEDO. Thank you.
With respect to an investment by one corporation in another corporation, say, a corporation
with 60-40 percent equity invests in another corporation which is permitted by the
Corporation Code, does the Committee adopt the grandfather rule?
MR. VILLEGAS. Yes, that is the understanding of the Committee.
MR. NOLLEDO. Therefore, we need additional Filipino capital?
MR. VILLEGAS. Yes.39
xxxx
MR. AZCUNA. May I be clarified as to that portion that was accepted by the Committee.
MR. VILLEGAS. The portion accepted by the Committee is the deletion of the phrase "voting
stock or controlling interest."
MR. AZCUNA. Hence, without the Davide amendment, the committee report would read:
"corporations or associations at least sixty percent of whose CAPITAL is owned by such
citizens."
MR. VILLEGAS. Yes.
MR. AZCUNA. So if the Davide amendment is lost, we are stuck with 60 percent of the capital
to be owned by citizens.
MR. VILLEGAS. That is right.
MR. AZCUNA. But the control can be with the foreigners even if they are the
minority. Let us say 40 percent of the capital is owned by them, but it is the
voting capital, whereas, the Filipinos own the nonvoting shares. So we can have a
situation where the corporation is controlled by foreigners despite being the
minority because they have the voting capital. That is the anomaly that would
result here.
MR. BENGZON. No, the reason we eliminated the word "stock" as stated in the
1973 and 1935 Constitutions is that according to Commissioner Rodrigo, there are
associations that do not have stocks. That is why we say "CAPITAL."
MR. AZCUNA. We should not eliminate the phrase "controlling interest."
MR. BENGZON. In the case of stock corporations, it is assumed. 40 (Boldfacing and
underscoring supplied)
Thus, 60 percent of the "capital" assumes, or should result in, a "controlling interest" in
the corporation.
The use of the term "capital" was intended to replace the word "stock" because associations
without stocks can operate public utilities as long as they meet the 60-40 ownership
requirement in favor of Filipino citizens prescribed in Section 11, Article XII of the
Constitution. However, this did not change the intent of the framers of the Constitution to
reserve exclusively to Philippine nationals the "controlling interest" in public utilities.
During the drafting of the 1935 Constitution, economic protectionism was "the battle-cry of
the nationalists in the Convention."41 The same battle-cry resulted in the nationalization of
the public utilities.42 This is also the same intent of the framers of the 1987 Constitution who
adopted the exact formulation embodied in the 1935 and 1973 Constitutions on foreign
equity limitations in partially nationalized industries.
The OSG, in its own behalf and as counsel for the State,43 agrees fully with the Courts
interpretation of the term "capital." In its Consolidated Comment, the OSG explains that the

deletion of the phrase "controlling interest" and replacement of the word "stock" with the
term "capital" were intended specifically to extend the scope of the entities qualified to
operate public utilities to include associations without stocks. The framers omission of the
phrase "controlling interest" did not mean the inclusion of all shares of stock, whether voting
or non-voting. The OSG reiterated essentially the Courts declaration that the Constitution
reserved exclusively to Philippine nationals the ownership and operation of public utilities
consistent with the States policy to "develop a self-reliant and independent national
economy effectively controlled by Filipinos."
As we held in our 28 June 2011 Decision, to construe broadly the term "capital" as the total
outstanding capital stock, treated as a single class regardless of the actual classification of
shares, grossly contravenes the intent and letter of the Constitution that the "State shall
develop a self-reliant and independent national economy effectively controlled by
Filipinos." We illustrated the glaring anomaly which would result in defining the term
"capital" as the total outstanding capital stock of a corporation, treated as a single class of
shares regardless of the actual classification of shares, to wit:
Let us assume that a corporation has 100 common shares owned by foreigners and
1,000,000 non-voting preferred shares owned by Filipinos, with both classes of share having
a par value of one peso (P 1.00) per share. Under the broad definition of the term "capital,"
such corporation would be considered compliant with the 40 percent constitutional limit on
foreign equity of public utilities since the overwhelming majority, or more than 99.999
percent, of the total outstanding capital stock is Filipino owned. This is obviously absurd.
In the example given, only the foreigners holding the common shares have voting rights in
the election of directors, even if they hold only 100 shares. The foreigners, with a minuscule
equity of less than 0.001 percent, exercise control over the public utility. On the other hand,
the Filipinos, holding more than 99.999 percent of the equity, cannot vote in the election of
directors and hence, have no control over the public utility. This starkly circumvents the
intent of the framers of the Constitution, as well as the clear language of the Constitution, to
place the control of public utilities in the hands of Filipinos. x x x
Further, even if foreigners who own more than forty percent of the voting shares elect an allFilipino board of directors, this situation does not guarantee Filipino control and does not in
any way cure the violation of the Constitution. The independence of the Filipino board
members so elected by such foreign shareholders is highly doubtful. As the OSG pointed out,
quoting Justice George Sutherlands words in Humphreys Executor v. US,44 "x x x it is quite
evident that one who holds his office only during the pleasure of another cannot be
depended upon to maintain an attitude of independence against the latters will." Allowing
foreign shareholders to elect a controlling majority of the board, even if all the directors are
Filipinos, grossly circumvents the letter and intent of the Constitution and defeats the very
purpose of our nationalization laws.
VII.
Last sentence of Section 11, Article XII of the Constitution
The last sentence of Section 11, Article XII of the 1987 Constitution reads:
The participation of foreign investors in the governing body of any public utility enterprise
shall be limited to their proportionate share in its capital, and all the executive and
managing officers of such corporation or association must be citizens of the Philippines.
During the Oral Arguments, the OSG emphasized that there was never a question on the
intent of the framers of the Constitution to limit foreign ownership, and assure majority
Filipino ownership and control of public utilities. The OSG argued, "while the delegates
disagreed as to the percentage threshold to adopt, x x x the records show they clearly
understood that Filipino control of the public utility corporation can only be and is obtained
only through the election of a majority of the members of the board."
Indeed, the only point of contention during the deliberations of the Constitutional
Commission on 23 August 1986 was the extent of majority Filipino control of public utilities.
This is evident from the following exchange:

THE PRESIDENT. Commissioner Jamir is recognized.

MR. JAMIR. Madam President, my proposed amendment on lines 20 and 21 is to delete the
phrase "two thirds of whose voting stock or controlling interest," and instead substitute the
words "SIXTY PERCENT OF WHOSE CAPITAL" so that the sentence will read: "No franchise,
certificate, or any other form of authorization for the operation of a public utility shall be
granted except to citizens of the Philippines or to corporations or associations organized
under the laws of the Philippines at least SIXTY PERCENT OF WHOSE CAPITAL is owned by
such citizens."
xxxx
THE PRESIDENT: Will Commissioner Jamir first explain?
MR. JAMIR. Yes, in this Article on National Economy and Patrimony, there were two previous
sections in which we fixed the Filipino equity to 60 percent as against 40 percent for
foreigners. It is only in this Section 15 with respect to public utilities that the committee
proposal was increased to two-thirds. I think it would be better to harmonize this provision
by providing that even in the case of public utilities, the minimum equity for Filipino citizens
should be 60 percent.
MR. ROMULO. Madam President.
THE PRESIDENT. Commissioner Romulo is recognized.
MR. ROMULO. My reason for supporting the amendment is based on the discussions I have
had with representatives of the Filipino majority owners of the international record carriers,
and the subsequent memoranda they submitted to me. x x x
Their second point is that under the Corporation Code, the management and control of a
corporation is vested in the board of directors, not in the officers but in the board of
directors. The officers are only agents of the board. And they believe that with 60 percent of
the equity, the Filipino majority stockholders undeniably control the board. Only on
important corporate acts can the 40-percent foreign equity exercise a veto, x x x.
x x x x45
MS. ROSARIO BRAID. Madam President.
THE PRESIDENT. Commissioner Rosario Braid is recognized.
MS. ROSARIO BRAID. Yes, in the interest of equal time, may I also read from a memorandum
by the spokesman of the Philippine Chamber of Communications on why they would like to
maintain the present equity, I am referring to the 66 2/3. They would prefer to have a 75-25
ratio but would settle for 66 2/3. x x x
xxxx
THE PRESIDENT. Just to clarify, would Commissioner Rosario Braid support the proposal of
two-thirds rather than the 60 percent?
MS. ROSARIO BRAID. I have added a clause that will put management in the hands of Filipino
citizens.
x x x x46
While they had differing views on the percentage of Filipino ownership of capital, it is clear
that the framers of the Constitution intended public utilities to be majority Filipino-owned
and controlled. To ensure that Filipinos control public utilities, the framers of the Constitution
approved, as additional safeguard, the inclusion of the last sentence of Section 11, Article XII
of the Constitution commanding that "[t]he participation of foreign investors in the
governing body of any public utility enterprise shall be limited to their proportionate share in
its capital, and all the executive and managing officers of such corporation or association
must be citizens of the Philippines." In other words, the last sentence of Section 11, Article
XII of the Constitution mandates that (1) the participation of foreign investors in the
governing body of the corporation or association shall be limited to their proportionate share
in the capital of such entity; and (2) all officers of the corporation or association must be
Filipino citizens.

Commissioner Rosario Braid proposed the inclusion of the phrase requiring the managing
officers of the corporation or association to be Filipino citizens specifically to prevent
management contracts, which were designed primarily to circumvent the Filipinization of
public utilities, and to assure Filipino control of public utilities, thus:
MS. ROSARIO BRAID. x x x They also like to suggest that we amend this provision by adding
a phrase which states: "THE MANAGEMENT BODY OF EVERY CORPORATION OR ASSOCIATION
SHALL IN ALL CASES BE CONTROLLED BY CITIZENS OF THE PHILIPPINES." I have with me
their position paper.
THE PRESIDENT. The Commissioner may proceed.
MS. ROSARIO BRAID. The three major international record carriers in the Philippines, which
Commissioner Romulo mentioned Philippine Global Communications, Eastern
Telecommunications, Globe Mackay Cable are 40-percent owned by foreign multinational
companies and 60-percent owned by their respective Filipino partners. All three, however,
also have management contracts with these foreign companies Philcom with RCA, ETPI
with Cable and Wireless PLC, and GMCR with ITT. Up to the present time, the general
managers of these carriers are foreigners. While the foreigners in these common carriers are
only minority owners, the foreign multinationals are the ones managing and controlling their
operations by virtue of their management contracts and by virtue of their strength in the
governing bodies of these carriers.47
xxxx
MR. OPLE. I think a number of us have agreed to ask Commissioner Rosario Braid to propose
an amendment with respect to the operating management of public utilities, and in this
amendment, we are associated with Fr. Bernas, Commissioners Nieva and Rodrigo.
Commissioner Rosario Braid will state this amendment now.
Thank you.
MS. ROSARIO BRAID. Madam President.
THE PRESIDENT. This is still on Section 15.
MS. ROSARIO BRAID. Yes.
MR. VILLEGAS. Yes, Madam President.
xxxx
MS. ROSARIO BRAID. Madam President, I propose a new section to read: THE MANAGEMENT
BODY OF EVERY CORPORATION OR ASSOCIATION SHALL IN ALL CASES BE CONTROLLED BY
CITIZENS OF THE PHILIPPINES."
This will prevent management contracts and assure control by Filipino
citizens. Will the committee assure us that this amendment will insure that past activities
such as management contracts will no longer be possible under this amendment?
xxxx
FR. BERNAS. Madam President.
THE PRESIDENT. Commissioner Bernas is recognized.
FR. BERNAS. Will the committee accept a reformulation of the first part?
MR. BENGZON. Let us hear it.
FR. BERNAS. The reformulation will be essentially the formula of the 1973 Constitution which
reads: "THE PARTICIPATION OF FOREIGN INVESTORS IN THE GOVERNING BODY OF ANY
PUBLIC UTILITY ENTERPRISE SHALL BE LIMITED TO THEIR PROPORTIONATE SHARE IN THE
CAPITAL THEREOF AND..."
MR. VILLEGAS. "ALL THE EXECUTIVE AND MANAGING OFFICERS OF SUCH CORPORATIONS
AND ASSOCIATIONS MUST BE CITIZENS OF THE PHILIPPINES."
MR. BENGZON. Will Commissioner Bernas read the whole thing again?

FR. BERNAS. "THE PARTICIPATION OF FOREIGN INVESTORS IN THE GOVERNING BODY OF ANY
PUBLIC UTILITY ENTERPRISE SHALL BE LIMITED TO THEIR PROPORTIONATE SHARE IN THE
CAPITAL THEREOF..." I do not have the rest of the copy.
MR. BENGZON. "AND ALL THE EXECUTIVE AND MANAGING OFFICERS OF SUCH
CORPORATIONS OR ASSOCIATIONS MUST BE CITIZENS OF THE PHILIPPINES." Is that correct?
MR. VILLEGAS. Yes.
MR. BENGZON. Madam President, I think that was said in a more elegant language. We
accept the amendment. Is that all right with Commissioner Rosario Braid?
MS. ROSARIO BRAID. Yes.
xxxx
MR. DE LOS REYES. The governing body refers to the board of directors and trustees.
MR. VILLEGAS. That is right.
MR. BENGZON. Yes, the governing body refers to the board of directors.
MR. REGALADO. It is accepted.
MR. RAMA. The body is now ready to vote, Madam President.
VOTING
xxxx
The results show 29 votes in favor and none against; so the proposed amendment is
approved.
xxxx
THE PRESIDENT. All right. Can we proceed now to vote on Section 15?
MR. RAMA. Yes, Madam President.
THE PRESIDENT. Will the chairman of the committee please read Section 15?
MR. VILLEGAS. The entire Section 15, as amended, reads: "No franchise, certificate, or any
other form of authorization for the operation of a public utility shall be granted except to
citizens of the Philippines or to corporations or associations organized under the laws of the
Philippines at least 60 PERCENT OF WHOSE CAPITAL is owned by such citizens." May I
request Commissioner Bengzon to please continue reading.
MR. BENGZON. "THE PARTICIPATION OF FOREIGN INVESTORS IN THE GOVERNING BODY OF
ANY PUBLIC UTILITY ENTERPRISE SHALL BE LIMITED TO THEIR PROPORTIONATE SHARE IN
THE CAPITAL THEREOF AND ALL THE EXECUTIVE AND MANAGING OFFICERS OF SUCH
CORPORATIONS OR ASSOCIATIONS MUST BE CITIZENS OF THE PHILIPPINES."
MR. VILLEGAS. "NOR SHALL SUCH FRANCHISE, CERTIFICATE OR AUTHORIZATION BE
EXCLUSIVE IN CHARACTER OR FOR A PERIOD LONGER THAN TWENTY-FIVE YEARS
RENEWABLE FOR NOT MORE THAN TWENTY-FIVE YEARS. Neither shall any such franchise or
right be granted except under the condition that it shall be subject to amendment,
alteration, or repeal by Congress when the common good so requires. The State shall
encourage equity participation in public utilities by the general public."
VOTING
xxxx
The results show 29 votes in favor and 4 against; Section 15, as amended, is
approved.48 (Emphasis supplied)
The last sentence of Section 11, Article XII of the 1987 Constitution, particularly the
provision on the limited participation of foreign investors in the governing body of public
utilities, is a reiteration of the last sentence of Section 5, Article XIV of the 1973
Constitution,49 signifying its importance in reserving ownership and control of public utilities
to Filipino citizens.
VIII.
The undisputed facts

There is no dispute, and respondents do not claim the contrary, that (1) foreigners own
64.27% of the common shares of PLDT, which class of shares exercises the sole right to
vote in the election of directors, and thus foreigners control PLDT; (2) Filipinos own only
35.73% of PLDTs common shares, constituting a minority of the voting stock, and thus
Filipinos do not control PLDT; (3) preferred shares, 99.44% owned by Filipinos, have no
voting rights; (4) preferred shares earn only 1/70 of the dividends that common shares
earn;50 (5) preferred shares have twice the par value of common shares; and (6) preferred
shares constitute 77.85% of the authorized capital stock of PLDT and common shares only
22.15%.
Despite the foregoing facts, the Court did not decide, and in fact refrained from ruling on the
question of whether PLDT violated the 60-40 ownership requirement in favor of Filipino
citizens in Section 11, Article XII of the 1987 Constitution. Such question indisputably calls
for a presentation and determination of evidence through a hearing, which is generally
outside the province of the Courts jurisdiction, but well within the SECs statutory powers.
Thus, for obvious reasons, the Court limited its decision on the purely legal and threshold
issue on the definition of the term "capital" in Section 11, Article XII of the Constitution and
directed the SEC to apply such definition in determining the exact percentage of foreign
ownership in PLDT.
IX.
PLDT is not an indispensable party;
SEC is impleaded in this case.
In his petition, Gamboa prays, among others:
xxxx
5. For the Honorable Court to issue a declaratory relief that ownership of common or voting
shares is the sole basis in determining foreign equity in a public utility and that any other
government rulings, opinions, and regulations inconsistent with this declaratory relief be
declared unconstitutional and a violation of the intent and spirit of the 1987 Constitution;
6. For the Honorable Court to declare null and void all sales of common stocks to foreigners
in excess of 40 percent of the total subscribed common shareholdings; and
7. For the Honorable Court to direct the Securities and Exchange Commission and
Philippine Stock Exchange to require PLDT to make a public disclosure of all of its
foreign shareholdings and their actual and real beneficial owners.
Other relief(s) just and equitable are likewise prayed for. (Emphasis supplied)
As can be gleaned from his prayer, Gamboa clearly asks this Court to compel the SEC to
perform its statutory duty to investigate whether "the required percentage of ownership of
the capital stock to be owned by citizens of the Philippines has been complied with [by
PLDT] as required by x x x the Constitution."51 Such plea clearly negates SECs argument
that it was not impleaded.
Granting that only the SEC Chairman was impleaded in this case, the Court has ample
powers to order the SECs compliance with its directive contained in the 28 June 2011
Decision in view of the far-reaching implications of this case. In Domingo v. Scheer,52 the
Court dispensed with the amendment of the pleadings to implead the Bureau of Customs
considering (1) the unique backdrop of the case; (2) the utmost need to avoid further delays;
and (3) the issue of public interest involved. The Court held:
The Court may be curing the defect in this case by adding the BOC as party-petitioner. The
petition should not be dismissed because the second action would only be a repetition of the
first. InSalvador, et al., v. Court of Appeals, et al., we held that this Court has full powers,
apart from that power and authority which is inherent, to amend the processes, pleadings,
proceedings and decisions by substituting as party-plaintiff the real party-in-interest. The
Court has the power to avoid delay in the disposition of this case, to order its
amendment as to implead the BOC as party-respondent. Indeed, it may no longer
be necessary to do so taking into account the unique backdrop in this case,
involving as it does an issue of public interest. After all, the Office of the Solicitor

General has represented the petitioner in the instant proceedings, as well as in the appellate
court, and maintained the validity of the deportation order and of the BOCs Omnibus
Resolution. It cannot, thus, be claimed by the State that the BOC was not afforded its day in
court, simply because only the petitioner, the Chairperson of the BOC, was the respondent in
the CA, and the petitioner in the instant recourse. In Alonso v. Villamor, we had the occasion
to state:
There is nothing sacred about processes or pleadings, their forms or contents.
Their sole purpose is to facilitate the application of justice to the rival claims of
contending parties. They were created, not to hinder and delay, but to facilitate and
promote, the administration of justice. They do not constitute the thing itself, which courts
are always striving to secure to litigants. They are designed as the means best adapted to
obtain that thing. In other words, they are a means to an end. When they lose the character
of the one and become the other, the administration of justice is at fault and courts are
correspondingly remiss in the performance of their obvious duty. 53 (Emphasis supplied)
In any event, the SEC has expressly manifested54 that it will abide by the Courts
decision and defer to the Courts definition of the term "capital" in Section 11,
Article XII of the Constitution. Further, the SEC entered its special appearance in
this case and argued during the Oral Arguments, indicating its submission to the
Courts jurisdiction. It is clear, therefore, that there exists no legal impediment
against the proper and immediate implementation of the Courts directive to the
SEC.
PLDT is an indispensable party only insofar as the other issues, particularly the factual
questions, are concerned. In other words, PLDT must be impleaded in order to fully resolve
the issues on (1) whether the sale of 111,415 PTIC shares to First Pacific violates the
constitutional limit on foreign ownership of PLDT; (2) whether the sale of common shares to
foreigners exceeded the 40 percent limit on foreign equity in PLDT; and (3) whether the total
percentage of the PLDT common shares with voting rights complies with the 60-40
ownership requirement in favor of Filipino citizens under the Constitution for the ownership
and operation of PLDT. These issues indisputably call for an examination of the parties
respective evidence, and thus are clearly within the jurisdiction of the SEC. In short, PLDT
must be impleaded, and must necessarily be heard, in the proceedings before the SEC
where the factual issues will be thoroughly threshed out and resolved.
Notably, the foregoing issues were left untouched by the Court. The Court did not
rule on the factual issues raised by Gamboa, except the single and purely legal issue on the
definition of the term "capital" in Section 11, Article XII of the Constitution. The Court
confined the resolution of the instant case to this threshold legal issue in deference to the
fact-finding power of the SEC.
Needless to state, the Court can validly, properly, and fully dispose of the fundamental legal
issue in this case even without the participation of PLDT since defining the term "capital" in
Section 11, Article XII of the Constitution does not, in any way, depend on whether PLDT was
impleaded. Simply put, PLDT is not indispensable for a complete resolution of the purely
legal question in this case.55 In fact, the Court, by treating the petition as one for
mandamus,56 merely directed the SEC to apply the Courts definition of the term "capital" in
Section 11, Article XII of the Constitution in determining whether PLDT committed any
violation of the said constitutional provision. The dispositive portion of the Courts
ruling is addressed not to PLDT but solely to the SEC, which is the administrative
agency tasked to enforce the 60-40 ownership requirement in favor of Filipino
citizens in Section 11, Article XII of the Constitution.
Since the Court limited its resolution on the purely legal issue on the definition of the term
"capital" in Section 11, Article XII of the 1987 Constitution, and directed the SEC to
investigate any violation by PLDT of the 60-40 ownership requirement in favor of Filipino
citizens under the Constitution,57 there is no deprivation of PLDTs property or denial of
PLDTs right to due process, contrary to Pangilinan and Nazarenos misimpression. Due

process will be afforded to PLDT when it presents proof to the SEC that it complies, as it
claims here, with Section 11, Article XII of the Constitution.
X.
Foreign Investments in the Philippines
Movants fear that the 28 June 2011 Decision would spell disaster to our economy, as it may
result in a sudden flight of existing foreign investors to "friendlier" countries and
simultaneously deterring new foreign investors to our country. In particular, the PSE claims
that the 28 June 2011 Decision may result in the following: (1) loss of more than P 630 billion
in foreign investments in PSE-listed shares; (2) massive decrease in foreign trading
transactions; (3) lower PSE Composite Index; and (4) local investors not investing in PSElisted shares.58
Dr. Bernardo M. Villegas, one of the amici curiae in the Oral Arguments, shared movants
apprehension. Without providing specific details, he pointed out the depressing state of the
Philippine economy compared to our neighboring countries which boast of growing
economies. Further, Dr. Villegas explained that the solution to our economic woes is for the
government to "take-over" strategic industries, such as the public utilities sector, thus:
JUSTICE CARPIO:
I would like also to get from you Dr. Villegas if you have additional information on whether
this high FDI59 countries in East Asia have allowed foreigners x x x control [of] their public
utilities, so that we can compare apples with apples.
DR. VILLEGAS:
Correct, but let me just make a comment. When these neighbors of ours find an industry
strategic, their solution is not to "Filipinize" or "Vietnamize" or "Singaporize." Their solution
is to make sure that those industries are in the hands of state enterprises. So, in
these countries, nationalization means the government takes over. And because
their governments are competent and honest enough to the public, that is the
solution. x x x 60 (Emphasis supplied)
If government ownership of public utilities is the solution, then foreign investments in our
public utilities serve no purpose. Obviously, there can never be foreign investments in public
utilities if, as Dr. Villegas claims, the "solution is to make sure that those industries are in the
hands of state enterprises." Dr. Villegass argument that foreign investments in
telecommunication companies like PLDT are badly needed to save our ailing economy
contradicts his own theory that the solution is for government to take over these companies.
Dr. Villegas is barking up the wrong tree since State ownership of public utilities and foreign
investments in such industries are diametrically opposed concepts, which cannot possibly be
reconciled.
In any event, the experience of our neighboring countries cannot be used as argument to
decide the present case differently for two reasons. First, the governments of our
neighboring countries have, as claimed by Dr. Villegas, taken over ownership and control of
their strategic public utilities like the telecommunications industry. Second, our Constitution
has specific provisions limiting foreign ownership in public utilities which the Court is sworn
to uphold regardless of the experience of our neighboring countries.
In our jurisdiction, the Constitution expressly reserves the ownership and operation of public
utilities to Filipino citizens, or corporations or associations at least 60 percent of whose
capital belongs to Filipinos. Following Dr. Villegass claim, the Philippines appears to be more
liberal in allowing foreign investors to own 40 percent of public utilities, unlike in other Asian
countries whose governments own and operate such industries.
XI.
Prospective Application of Sanctions
In its Motion for Partial Reconsideration, the SEC sought to clarify the reckoning period of the
application and imposition of appropriate sanctions against PLDT if found violating Section
11, Article XII of the Constitution.1avvphi1

As discussed, the Court has directed the SEC to investigate and determine whether PLDT
violated Section 11, Article XII of the Constitution. Thus, there is no dispute that it is only
after the SEC has determined PLDTs violation, if any exists at the time of the
commencement of the administrative case or investigation, that the SEC may impose the
statutory sanctions against PLDT. In other words, once the 28 June 2011 Decision becomes
final, the SEC shall impose the appropriate sanctions only if it finds after due hearing that, at
the start of the administrative case or investigation, there is an existing violation of Section
11, Article XII of the Constitution. Under prevailing jurisprudence, public utilities that fail to
comply with the nationality requirement under Section 11, Article XII and the FIA can cure
their deficiencies prior to the start of the administrative case or investigation. 61
XII.
Final Word
The Constitution expressly declares as State policy the development of an economy
"effectively controlled" by Filipinos. Consistent with such State policy, the Constitution
explicitly reserves the ownership and operation of public utilities to Philippine nationals, who
are defined in the Foreign Investments Act of 1991 as Filipino citizens, or corporations or
associations at least 60 percent of whose capital with voting rights belongs to Filipinos.
The FIAs implementing rules explain that "[f]or stocks to be deemed owned and held by
Philippine citizens or Philippine nationals, mere legal title is not enough to meet the required
Filipino equity. Full beneficial ownership of the stocks, coupled with appropriate
voting rights is essential." In effect, the FIA clarifies, reiterates and confirms the
interpretation that the term "capital" in Section 11, Article XII of the 1987 Constitution refers
to shares with voting rights, as well as with full beneficial ownership. This is
precisely because the right to vote in the election of directors, coupled with full beneficial
ownership of stocks, translates to effective control of a corporation.
Any other construction of the term "capital" in Section 11, Article XII of the Constitution
contravenes the letter and intent of the Constitution. Any other meaning of the term
"capital" openly invites alien domination of economic activities reserved exclusively to
Philippine nationals. Therefore, respondents interpretation will ultimately result in handing
over effective control of our national economy to foreigners in patent violation of the
Constitution, making Filipinos second-class citizens in their own country.
Filipinos have only to remind themselves of how this country was exploited under the Parity
Amendment, which gave Americans the same rights as Filipinos in the exploitation of natural
resources, and in the ownership and control of public utilities, in the Philippines. To do this
the 1935 Constitution, which contained the same 60 percent Filipino ownership and control
requirement as the present 1987 Constitution, had to be amended to give Americans parity
rights with Filipinos. There was bitter opposition to the Parity Amendment62 and many
Filipinos eagerly awaited its expiration. In late 1968, PLDT was one of the Americancontrolled public utilities that became Filipino-controlled when the controlling American
stockholders divested in anticipation of the expiration of the Parity Amendment on 3 July
1974.63 No economic suicide happened when control of public utilities and mining
corporations passed to Filipinos hands upon expiration of the Parity Amendment.
Movants interpretation of the term "capital" would bring us back to the same evils spawned
by the Parity Amendment, effectively giving foreigners parity rights with Filipinos,
but this time even without any amendment to the present Constitution. Worse,
movants interpretation opens up our national economy toeffective control not only by
Americans but also by all foreigners, be they Indonesians, Malaysians or Chinese,
even in the absence of reciprocal treaty arrangements. At least the Parity
Amendment, as implemented by the Laurel-Langley Agreement, gave the capital-starved
Filipinos theoretical parity the same rights as Americans to exploit natural resources, and
to own and control public utilities, in the United States of America. Here, movants
interpretation would effectively mean a unilateral opening up of our national economy to
all foreigners, without any reciprocal arrangements. That would mean that Indonesians,
Malaysians and Chinese nationals could effectively control our mining companies and public

utilities while Filipinos, even if they have the capital, could not control similar corporations in
these countries.
The 1935, 1973 and 1987 Constitutions have the same 60 percent Filipino ownership and
control requirement for public utilities like PLOT. Any deviation from this requirement
necessitates an amendment to the Constitution as exemplified by the Parity Amendment.
This Court has no power to amend the Constitution for its power and duty is only to faithfully
apply and interpret the Constitution.
WHEREFORE, we DENY the motions for reconsideration WITH FINALITY. No further
pleadings shall be entertained.
SO ORDERED.

G.R. No. 195580

April 21, 2014
NARRA NICKEL MINING AND DEVELOPMENT CORP., TESORO MINING AND
DEVELOPMENT, INC., and MCARTHUR MINING, INC., Petitioners,
vs.
REDMONT CONSOLIDATED MINES CORP., Respondent.
DECISION
VELASCO, JR., J.:
Before this Court is a Petition for Review on Certiorari under Rule 45 filed by Narra Nickel and
Mining Development Corp. (Narra), Tesoro Mining and Development, Inc. (Tesoro), and
McArthur Mining Inc. (McArthur), which seeks to reverse the October 1, 2010 Decision 1 and
the February 15, 2011 Resolution of the Court of Appeals (CA).
The Facts
Sometime in December 2006, respondent Redmont Consolidated Mines Corp. (Redmont), a
domestic corporation organized and existing under Philippine laws, took interest in mining
and exploring certain areas of the province of Palawan. After inquiring with the Department
of Environment and Natural Resources (DENR), it learned that the areas where it wanted to
undertake exploration and mining activities where already covered by Mineral Production
Sharing Agreement (MPSA) applications of petitioners Narra, Tesoro and McArthur.
Petitioner McArthur, through its predecessor-in-interest Sara Marie Mining, Inc. (SMMI), filed
an application for an MPSA and Exploration Permit (EP) with the Mines and Geo-Sciences
Bureau (MGB), Region IV-B, Office of the Department of Environment and Natural Resources
(DENR).
Subsequently, SMMI was issued MPSA-AMA-IVB-153 covering an area of over 1,782 hectares
in Barangay Sumbiling, Municipality of Bataraza, Province of Palawan and EPA-IVB-44 which
includes an area of 3,720 hectares in Barangay Malatagao, Bataraza, Palawan. The MPSA
and EP were then transferred to Madridejos Mining Corporation (MMC) and, on November 6,
2006, assigned to petitioner McArthur.2
Petitioner Narra acquired its MPSA from Alpha Resources and Development Corporation and
Patricia Louise Mining & Development Corporation (PLMDC) which previously filed an
application for an MPSA with the MGB, Region IV-B, DENR on January 6, 1992. Through the
said application, the DENR issued MPSA-IV-1-12 covering an area of 3.277 hectares in
barangays Calategas and San Isidro, Municipality of Narra, Palawan. Subsequently, PLMDC
conveyed, transferred and/or assigned its rights and interests over the MPSA application in
favor of Narra.
Another MPSA application of SMMI was filed with the DENR Region IV-B, labeled as MPSAAMA-IVB-154 (formerly EPA-IVB-47) over 3,402 hectares in Barangays Malinao and Princesa
Urduja, Municipality of Narra, Province of Palawan. SMMI subsequently conveyed, transferred
and assigned its rights and interest over the said MPSA application to Tesoro.
On January 2, 2007, Redmont filed before the Panel of Arbitrators (POA) of the DENR three
(3) separate petitions for the denial of petitioners applications for MPSA designated as AMAIVB-153, AMA-IVB-154 and MPSA IV-1-12.
In the petitions, Redmont alleged that at least 60% of the capital stock of McArthur, Tesoro
and Narra are owned and controlled by MBMI Resources, Inc. (MBMI), a 100% Canadian
corporation. Redmont reasoned that since MBMI is a considerable stockholder of petitioners,
it was the driving force behind petitioners filing of the MPSAs over the areas covered by
applications since it knows that it can only participate in mining activities through
corporations which are deemed Filipino citizens. Redmont argued that given that petitioners
capital stocks were mostly owned by MBMI, they were likewise disqualified from engaging in
mining activities through MPSAs, which are reserved only for Filipino citizens.
In their Answers, petitioners averred that they were qualified persons under Section 3(aq) of
Republic Act No. (RA) 7942 or the Philippine Mining Act of 1995 which provided:

Sec. 3 Definition of Terms. As used in and for purposes of this Act, the following terms,
whether in singular or plural, shall mean:
xxxx
(aq) "Qualified person" means any citizen of the Philippines with capacity to contract, or a
corporation, partnership, association, or cooperative organized or authorized for the purpose
of engaging in mining, with technical and financial capability to undertake mineral resources
development and duly registered in accordance with law at least sixty per cent (60%) of the
capital of which is owned by citizens of the Philippines: Provided, That a legally organized
foreign-owned corporation shall be deemed a qualified person for purposes of granting an
exploration permit, financial or technical assistance agreement or mineral processing permit.
Additionally, they stated that their nationality as applicants is immaterial because they also
applied for Financial or Technical Assistance Agreements (FTAA) denominated as AFTA-IVB-09
for McArthur, AFTA-IVB-08 for Tesoro and AFTA-IVB-07 for Narra, which are granted to
foreign-owned corporations. Nevertheless, they claimed that the issue on nationality should
not be raised since McArthur, Tesoro and Narra are in fact Philippine Nationals as 60% of
their capital is owned by citizens of the Philippines. They asserted that though MBMI owns
40% of the shares of PLMC (which owns 5,997 shares of Narra), 3 40% of the shares of MMC
(which owns 5,997 shares of McArthur)4and 40% of the shares of SLMC (which, in turn, owns
5,997 shares of Tesoro),5 the shares of MBMI will not make it the owner of at least 60% of the
capital stock of each of petitioners. They added that the best tool used in determining the
nationality of a corporation is the "control test," embodied in Sec. 3 of RA 7042 or the
Foreign Investments Act of 1991. They also claimed that the POA of DENR did not have
jurisdiction over the issues in Redmonts petition since they are not enumerated in Sec. 77
of RA 7942. Finally, they stressed that Redmont has no personality to sue them because it
has no pending claim or application over the areas applied for by petitioners.
On December 14, 2007, the POA issued a Resolution disqualifying petitioners from gaining
MPSAs. It held:
[I]t is clearly established that respondents are not qualified applicants to engage in mining
activities. On the other hand, [Redmont] having filed its own applications for an EPA over the
areas earlier covered by the MPSA application of respondents may be considered if and
when they are qualified under the law. The violation of the requirements for the issuance
and/or grant of permits over mining areas is clearly established thus, there is reason to
believe that the cancellation and/or revocation of permits already issued under the premises
is in order and open the areas covered to other qualified applicants.
xxxx
WHEREFORE, the Panel of Arbitrators finds the Respondents, McArthur Mining Inc., Tesoro
Mining and Development, Inc., and Narra Nickel Mining and Development Corp. as,
DISQUALIFIED for being considered as Foreign Corporations. Their Mineral Production
Sharing Agreement (MPSA) are hereby x x x DECLARED NULL AND VOID. 6
The POA considered petitioners as foreign corporations being "effectively controlled" by
MBMI, a 100% Canadian company and declared their MPSAs null and void. In the same
Resolution, it gave due course to Redmonts EPAs. Thereafter, on February 7, 2008, the POA
issued an Order7 denying the Motion for Reconsideration filed by petitioners.
Aggrieved by the Resolution and Order of the POA, McArthur and Tesoro filed a joint Notice of
Appeal8 and Memorandum of Appeal9 with the Mines Adjudication Board (MAB) while Narra
separately filed its Notice of Appeal10 and Memorandum of Appeal.11
In their respective memorandum, petitioners emphasized that they are qualified persons
under the law. Also, through a letter, they informed the MAB that they had their individual
MPSA applications converted to FTAAs. McArthurs FTAA was denominated as AFTA-IVB0912 on May 2007, while Tesoros MPSA application was converted to AFTA-IVB-0813 on May
28, 2007, and Narras FTAA was converted to AFTA-IVB-0714 on March 30, 2006.
Pending the resolution of the appeal filed by petitioners with the MAB, Redmont filed a
Complaint15 with the Securities and Exchange Commission (SEC), seeking the revocation of

the certificates for registration of petitioners on the ground that they are foreign-owned or
controlled corporations engaged in mining in violation of Philippine laws. Thereafter,
Redmont filed on September 1, 2008 a Manifestation and Motion to Suspend Proceeding
before the MAB praying for the suspension of the proceedings on the appeals filed by
McArthur, Tesoro and Narra.
Subsequently, on September 8, 2008, Redmont filed before the Regional Trial Court of
Quezon City, Branch 92 (RTC) a Complaint16 for injunction with application for issuance of a
temporary restraining order (TRO) and/or writ of preliminary injunction, docketed as Civil
Case No. 08-63379. Redmont prayed for the deferral of the MAB proceedings pending the
resolution of the Complaint before the SEC.
But before the RTC can resolve Redmonts Complaint and applications for injunctive reliefs,
the MAB issued an Order on September 10, 2008, finding the appeal meritorious. It held:
WHEREFORE, in view of the foregoing, the Mines Adjudication Board hereby REVERSES and
SETS ASIDE the Resolution dated 14 December 2007 of the Panel of Arbitrators of Region IVB (MIMAROPA) in POA-DENR Case Nos. 2001-01, 2007-02 and 2007-03, and its Order dated
07 February 2008 denying the Motions for Reconsideration of the Appellants. The Petition
filed by Redmont Consolidated Mines Corporation on 02 January 2007 is hereby ordered
DISMISSED.17
Belatedly, on September 16, 2008, the RTC issued an Order18 granting Redmonts application
for a TRO and setting the case for hearing the prayer for the issuance of a writ of preliminary
injunction on September 19, 2008.
Meanwhile, on September 22, 2008, Redmont filed a Motion for Reconsideration 19 of the
September 10, 2008 Order of the MAB. Subsequently, it filed a Supplemental Motion for
Reconsideration20 on September 29, 2008.
Before the MAB could resolve Redmonts Motion for Reconsideration and Supplemental
Motion for Reconsideration, Redmont filed before the RTC a Supplemental Complaint 21 in Civil
Case No. 08-63379.
On October 6, 2008, the RTC issued an Order 22 granting the issuance of a writ of preliminary
injunction enjoining the MAB from finally disposing of the appeals of petitioners and from
resolving Redmonts Motion for Reconsideration and Supplement Motion for Reconsideration
of the MABs September 10, 2008 Resolution.
On July 1, 2009, however, the MAB issued a second Order denying Redmonts Motion for
Reconsideration and Supplemental Motion for Reconsideration and resolving the appeals
filed by petitioners.
Hence, the petition for review filed by Redmont before the CA, assailing the Orders issued by
the MAB. On October 1, 2010, the CA rendered a Decision, the dispositive of which reads:
WHEREFORE, the Petition is PARTIALLY GRANTED. The assailed Orders, dated September 10,
2008 and July 1, 2009 of the Mining Adjudication Board are reversed and set aside. The
findings of the Panel of Arbitrators of the Department of Environment and Natural Resources
that respondents McArthur, Tesoro and Narra are foreign corporations is upheld and,
therefore, the rejection of their applications for Mineral Product Sharing Agreement should
be recommended to the Secretary of the DENR.
With respect to the applications of respondents McArthur, Tesoro and Narra for Financial or
Technical Assistance Agreement (FTAA) or conversion of their MPSA applications to FTAA, the
matter for its rejection or approval is left for determination by the Secretary of the DENR and
the President of the Republic of the Philippines.
SO ORDERED.23
In a Resolution dated February 15, 2011, the CA denied the Motion for Reconsideration filed
by petitioners.
After a careful review of the records, the CA found that there was doubt as to the nationality
of petitioners when it realized that petitioners had a common major investor, MBMI, a
corporation composed of 100% Canadians. Pursuant to the first sentence of paragraph 7 of

Department of Justice (DOJ) Opinion No. 020, Series of 2005, adopting the 1967 SEC Rules
which implemented the requirement of the Constitution and other laws pertaining to the
exploitation of natural resources, the CA used the "grandfather rule" to determine the
nationality of petitioners. It provided:
Shares belonging to corporations or partnerships at least 60% of the capital of which is
owned by Filipino citizens shall be considered as of Philippine nationality, but if the
percentage of Filipino ownership in the corporation or partnership is less than 60%, only the
number of shares corresponding to such percentage shall be counted as of Philippine
nationality. Thus, if 100,000 shares are registered in the name of a corporation or
partnership at least 60% of the capital stock or capital, respectively, of which belong to
Filipino citizens, all of the shares shall be recorded as owned by Filipinos. But if less than
60%, or say, 50% of the capital stock or capital of the corporation or partnership,
respectively, belongs to Filipino citizens, only 50,000 shares shall be recorded as belonging
to aliens.24 (emphasis supplied)
In determining the nationality of petitioners, the CA looked into their corporate structures
and their corresponding common shareholders. Using the grandfather rule, the CA
discovered that MBMI in effect owned majority of the common stocks of the petitioners as
well as at least 60% equity interest of other majority shareholders of petitioners through
joint venture agreements. The CA found that through a "web of corporate layering, it is clear
that one common controlling investor in all mining corporations involved x x x is
MBMI."25 Thus, it concluded that petitioners McArthur, Tesoro and Narra are also in
partnership with, or privies-in-interest of, MBMI.
Furthermore, the CA viewed the conversion of the MPSA applications of petitioners into FTAA
applications suspicious in nature and, as a consequence, it recommended the rejection of
petitioners MPSA applications by the Secretary of the DENR.
With regard to the settlement of disputes over rights to mining areas, the CA pointed out
that the POA has jurisdiction over them and that it also has the power to determine the of
nationality of petitioners as a prerequisite of the Constitution prior the conferring of rights to
"co-production, joint venture or production-sharing agreements" of the state to mining
rights. However, it also stated that the POAs jurisdiction is limited only to the resolution of
the dispute and not on the approval or rejection of the MPSAs. It stipulated that only the
Secretary of the DENR is vested with the power to approve or reject applications for MPSA.
Finally, the CA upheld the findings of the POA in its December 14, 2007 Resolution which
considered petitioners McArthur, Tesoro and Narra as foreign corporations. Nevertheless, the
CA determined that the POAs declaration that the MPSAs of McArthur, Tesoro and Narra are
void is highly improper.
While the petition was pending with the CA, Redmont filed with the Office of the President
(OP) a petition dated May 7, 2010 seeking the cancellation of petitioners FTAAs. The OP
rendered a Decision26 on April 6, 2011, wherein it canceled and revoked petitioners FTAAs
for violating and circumventing the "Constitution x x x[,] the Small Scale Mining Law and
Environmental Compliance Certificate as well as Sections 3 and 8 of the Foreign Investment
Act and E.O. 584."27 The OP, in affirming the cancellation of the issued FTAAs, agreed with
Redmont stating that petitioners committed violations against the abovementioned laws and
failed to submit evidence to negate them. The Decision further quoted the December 14,
2007 Order of the POA focusing on the alleged misrepresentation and claims made by
petitioners of being domestic or Filipino corporations and the admitted continued mining
operation of PMDC using their locally secured Small Scale Mining Permit inside the area
earlier applied for an MPSA application which was eventually transferred to Narra. It also
agreed with the POAs estimation that the filing of the FTAA applications by petitioners is a
clear admission that they are "not capable of conducting a large scale mining operation and
that they need the financial and technical assistance of a foreign entity in their operation,
that is why they sought the participation of MBMI Resources, Inc." 28 The Decision further
quoted:

The filing of the FTAA application on June 15, 2007, during the pendency of the case only
demonstrate the violations and lack of qualification of the respondent corporations to
engage in mining. The filing of the FTAA application conversion which is allowed foreign
corporation of the earlier MPSA is an admission that indeed the respondent is not Filipino but
rather of foreign nationality who is disqualified under the laws. Corporate documents of
MBMI Resources, Inc. furnished its stockholders in their head office in Canada suggest that
they are conducting operation only through their local counterparts. 29
The Motion for Reconsideration of the Decision was further denied by the OP in a
Resolution30 dated July 6, 2011. Petitioners then filed a Petition for Review on Certiorari of
the OPs Decision and Resolution with the CA, docketed as CA-G.R. SP No. 120409. In the CA
Decision dated February 29, 2012, the CA affirmed the Decision and Resolution of the OP.
Thereafter, petitioners appealed the same CA decision to this Court which is now pending
with a different division.
Thus, the instant petition for review against the October 1, 2010 Decision of the CA.
Petitioners put forth the following errors of the CA:
I.
The Court of Appeals erred when it did not dismiss the case for mootness despite the
fact that the subject matter of the controversy, the MPSA Applications, have already
been converted into FTAA applications and that the same have already been granted.
II.
The Court of Appeals erred when it did not dismiss the case for lack of jurisdiction
considering that the Panel of Arbitrators has no jurisdiction to determine the
nationality of Narra, Tesoro and McArthur.
III.
The Court of Appeals erred when it did not dismiss the case on account of Redmonts
willful forum shopping.
IV.
The Court of Appeals ruling that Narra, Tesoro and McArthur are foreign corporations
based on the "Grandfather Rule" is contrary to law, particularly the express mandate
of the Foreign Investments Act of 1991, as amended, and the FIA Rules.
V.
The Court of Appeals erred when it applied the exceptions to the res inter alios acta
rule.
VI.
The Court of Appeals erred when it concluded that the conversion of the MPSA
Applications into FTAA Applications were of "suspicious nature" as the same is based
on mere conjectures and surmises without any shred of evidence to show the same. 31
We find the petition to be without merit.
This case not moot and academic
The claim of petitioners that the CA erred in not rendering the instant case as moot is
without merit.
Basically, a case is said to be moot and/or academic when it "ceases to present a justiciable
controversy by virtue of supervening events, so that a declaration thereon would be of no
practical use or value."32 Thus, the courts "generally decline jurisdiction over the case or
dismiss it on the ground of mootness."33
The "mootness" principle, however, does accept certain exceptions and the mere raising of
an issue of "mootness" will not deter the courts from trying a case when there is a valid
reason to do so. In David v. Macapagal-Arroyo (David), the Court provided four instances
where courts can decide an otherwise moot case, thus:
1.) There is a grave violation of the Constitution;

2.) The exceptional character of the situation and paramount public interest is
involved;
3.) When constitutional issue raised requires formulation of controlling principles to
guide the bench, the bar, and the public; and
4.) The case is capable of repetition yet evading review. 34
All of the exceptions stated above are present in the instant case. We of this Court note that
a grave violation of the Constitution, specifically Section 2 of Article XII, is being committed
by a foreign corporation right under our countrys nose through a myriad of corporate
layering under different, allegedly, Filipino corporations. The intricate corporate layering
utilized by the Canadian company, MBMI, is of exceptional character and involves
paramount public interest since it undeniably affects the exploitation of our Countrys
natural resources. The corresponding actions of petitioners during the lifetime and existence
of the instant case raise questions as what principle is to be applied to cases with similar
issues. No definite ruling on such principle has been pronounced by the Court; hence, the
disposition of the issues or errors in the instant case will serve as a guide "to the bench, the
bar and the public."35 Finally, the instant case is capable of repetition yet evading review,
since the Canadian company, MBMI, can keep on utilizing dummy Filipino corporations
through various schemes of corporate layering and conversion of applications to skirt the
constitutional prohibition against foreign mining in Philippine soil.
Conversion of MPSA applications to FTAA applications
We shall discuss the first error in conjunction with the sixth error presented by petitioners
since both involve the conversion of MPSA applications to FTAA applications. Petitioners
propound that the CA erred in ruling against them since the questioned MPSA applications
were already converted into FTAA applications; thus, the issue on the prohibition relating to
MPSA applications of foreign mining corporations is academic. Also, petitioners would want
us to correct the CAs finding which deemed the aforementioned conversions of applications
as suspicious in nature, since it is based on mere conjectures and surmises and not
supported with evidence.
We disagree.
The CAs analysis of the actions of petitioners after the case was filed against them by
respondent is on point. The changing of applications by petitioners from one type to another
just because a case was filed against them, in truth, would raise not a few sceptics
eyebrows. What is the reason for such conversion? Did the said conversion not stem from
the case challenging their citizenship and to have the case dismissed against them for being
"moot"? It is quite obvious that it is petitioners strategy to have the case dismissed against
them for being "moot."
Consider the history of this case and how petitioners responded to every action done by the
court or appropriate government agency: on January 2, 2007, Redmont filed three separate
petitions for denial of the MPSA applications of petitioners before the POA. On June 15, 2007,
petitioners filed a conversion of their MPSA applications to FTAAs. The POA, in its December
14, 2007 Resolution, observed this suspect change of applications while the case was
pending before it and held:
The filing of the Financial or Technical Assistance Agreement application is a clear admission
that the respondents are not capable of conducting a large scale mining operation and that
they need the financial and technical assistance of a foreign entity in their operation that is
why they sought the participation of MBMI Resources, Inc. The participation of MBMI in the
corporation only proves the fact that it is the Canadian company that will provide the
finances and the resources to operate the mining areas for the greater benefit and interest
of the same and not the Filipino stockholders who only have a less substantial financial stake
in the corporation.
xxxx
x x x The filing of the FTAA application on June 15, 2007, during the pendency of the case
only demonstrate the violations and lack of qualification of the respondent corporations to

engage in mining. The filing of the FTAA application conversion which is allowed foreign
corporation of the earlier MPSA is an admission that indeed the respondent is not Filipino but
rather of foreign nationality who is disqualified under the laws. Corporate documents of
MBMI Resources, Inc. furnished its stockholders in their head office in Canada suggest that
they are conducting operation only through their local counterparts. 36
On October 1, 2010, the CA rendered a Decision which partially granted the petition,
reversing and setting aside the September 10, 2008 and July 1, 2009 Orders of the MAB. In
the said Decision, the CA upheld the findings of the POA of the DENR that the herein
petitioners are in fact foreign corporations thus a recommendation of the rejection of their
MPSA applications were recommended to the Secretary of the DENR. With respect to the
FTAA applications or conversion of the MPSA applications to FTAAs, the CA deferred the
matter for the determination of the Secretary of the DENR and the President of the Republic
of the Philippines.37
In their Motion for Reconsideration dated October 26, 2010, petitioners prayed for the
dismissal of the petition asserting that on April 5, 2010, then President Gloria MacapagalArroyo signed and issued in their favor FTAA No. 05-2010-IVB, which rendered the petition
moot and academic. However, the CA, in a Resolution dated February 15, 2011 denied their
motion for being a mere "rehash of their claims and defenses." 38 Standing firm on its
Decision, the CA affirmed the ruling that petitioners are, in fact, foreign corporations. On
April 5, 2011, petitioners elevated the case to us via a Petition for Review on Certiorari under
Rule 45, questioning the Decision of the CA. Interestingly, the OP rendered a Decision dated
April 6, 2011, a day after this petition for review was filed, cancelling and revoking the
FTAAs, quoting the Order of the POA and stating that petitioners are foreign corporations
since they needed the financial strength of MBMI, Inc. in order to conduct large scale mining
operations. The OP Decision also based the cancellation on the misrepresentation of facts
and the violation of the "Small Scale Mining Law and Environmental Compliance Certificate
as well as Sections 3 and 8 of the Foreign Investment Act and E.O. 584." 39 On July 6, 2011,
the OP issued a Resolution, denying the Motion for Reconsideration filed by the petitioners.
Respondent Redmont, in its Comment dated October 10, 2011, made known to the Court the
fact of the OPs Decision and Resolution. In their Reply, petitioners chose to ignore the OP
Decision and continued to reuse their old arguments claiming that they were granted FTAAs
and, thus, the case was moot. Petitioners filed a Manifestation and Submission dated
October 19, 2012,40 wherein they asserted that the present petition is moot since, in a
remarkable turn of events, MBMI was able to sell/assign all its shares/interest in the "holding
companies" to DMCI Mining Corporation (DMCI), a Filipino corporation and, in effect, making
their respective corporations fully-Filipino owned.
Again, it is quite evident that petitioners have been trying to have this case dismissed for
being "moot." Their final act, wherein MBMI was able to allegedly sell/assign all its shares
and interest in the petitioner "holding companies" to DMCI, only proves that they were in
fact not Filipino corporations from the start. The recent divesting of interest by MBMI will not
change the stand of this Court with respect to the nationality of petitioners prior the
suspicious change in their corporate structures. The new documents filed by petitioners are
factual evidence that this Court has no power to verify.
The only thing clear and proved in this Court is the fact that the OP declared that petitioner
corporations have violated several mining laws and made misrepresentations and falsehood
in their applications for FTAA which lead to the revocation of the said FTAAs, demonstrating
that petitioners are not beyond going against or around the law using shifty actions and
strategies. Thus, in this instance, we can say that their claim of mootness is moot in itself
because their defense of conversion of MPSAs to FTAAs has been discredited by the OP
Decision.
Grandfather test
The main issue in this case is centered on the issue of petitioners nationality, whether
Filipino or foreign. In their previous petitions, they had been adamant in insisting that they
were Filipino corporations, until they submitted their Manifestation and Submission dated

October 19, 2012 where they stated the alleged change of corporate ownership to reflect
their Filipino ownership. Thus, there is a need to determine the nationality of petitioner
corporations.
Basically, there are two acknowledged tests in determining the nationality of a corporation:
the control test and the grandfather rule. Paragraph 7 of DOJ Opinion No. 020, Series of
2005, adopting the 1967 SEC Rules which implemented the requirement of the Constitution
and other laws pertaining to the controlling interests in enterprises engaged in the
exploitation of natural resources owned by Filipino citizens, provides:
Shares belonging to corporations or partnerships at least 60% of the capital of which is
owned by Filipino citizens shall be considered as of Philippine nationality, but if the
percentage of Filipino ownership in the corporation or partnership is less than 60%, only the
number of shares corresponding to such percentage shall be counted as of Philippine
nationality. Thus, if 100,000 shares are registered in the name of a corporation or
partnership at least 60% of the capital stock or capital, respectively, of which belong to
Filipino citizens, all of the shares shall be recorded as owned by Filipinos. But if less than
60%, or say, 50% of the capital stock or capital of the corporation or partnership,
respectively, belongs to Filipino citizens, only 50,000 shares shall be counted as owned by
Filipinos and the other 50,000 shall be recorded as belonging to aliens.
The first part of paragraph 7, DOJ Opinion No. 020, stating "shares belonging to corporations
or partnerships at least 60% of the capital of which is owned by Filipino citizens shall be
considered as of Philippine nationality," pertains to the control test or the liberal rule. On the
other hand, the second part of the DOJ Opinion which provides, "if the percentage of the
Filipino ownership in the corporation or partnership is less than 60%, only the number of
shares corresponding to such percentage shall be counted as Philippine nationality," pertains
to the stricter, more stringent grandfather rule.
Prior to this recent change of events, petitioners were constant in advocating the application
of the "control test" under RA 7042, as amended by RA 8179, otherwise known as the
Foreign Investments Act (FIA), rather than using the stricter grandfather rule. The pertinent
provision under Sec. 3 of the FIA provides:
SECTION 3. Definitions. - As used in this Act:
a.) The term Philippine national shall mean a citizen of the Philippines; or a domestic
partnership or association wholly owned by the citizens of the Philippines; a corporation
organized under the laws of the Philippines of which at least sixty percent (60%) of the
capital stock outstanding and entitled to vote is wholly owned by Filipinos or a trustee of
funds for pension or other employee retirement or separation benefits, where the trustee is
a Philippine national and at least sixty percent (60%) of the fund will accrue to the benefit of
Philippine nationals: Provided, That were a corporation and its non-Filipino stockholders own
stocks in a Securities and Exchange Commission (SEC) registered enterprise, at least sixty
percent (60%) of the capital stock outstanding and entitled to vote of each of both
corporations must be owned and held by citizens of the Philippines and at least sixty percent
(60%) of the members of the Board of Directors, in order that the corporation shall be
considered a Philippine national. (emphasis supplied)
The grandfather rule, petitioners reasoned, has no leg to stand on in the instant case since
the definition of a "Philippine National" under Sec. 3 of the FIA does not provide for it. They
further claim that the grandfather rule "has been abandoned and is no longer the applicable
rule."41 They also opined that the last portion of Sec. 3 of the FIA admits the application of a
"corporate layering" scheme of corporations. Petitioners claim that the clear and
unambiguous wordings of the statute preclude the court from construing it and prevent the
courts use of discretion in applying the law. They said that the plain, literal meaning of the
statute meant the application of the control test is obligatory.
We disagree. "Corporate layering" is admittedly allowed by the FIA; but if it is used to
circumvent the Constitution and pertinent laws, then it becomes illegal. Further, the

pronouncement of petitioners that the grandfather rule has already been abandoned must
be discredited for lack of basis.
Art. XII, Sec. 2 of the Constitution provides:
Sec. 2. All lands of the public domain, waters, minerals, coal, petroleum and other mineral
oils, all forces of potential energy, fisheries, forests or timber, wildlife, flora and fauna, and
other natural resources are owned by the State. With the exception of agricultural lands, all
other natural resources shall not be alienated. The exploration, development, and utilization
of natural resources shall be under the full control and supervision of the State. The State
may directly undertake such activities, or it may enter into co-production, joint venture or
production-sharing agreements with Filipino citizens, or corporations or associations at least
sixty per centum of whose capital is owned by such citizens. Such agreements may be for a
period not exceeding twenty-five years, renewable for not more than twenty-five years, and
under such terms and conditions as may be provided by law.
xxxx
The President may enter into agreements with Foreign-owned corporations involving either
technical or financial assistance for large-scale exploration, development, and utilization of
minerals, petroleum, and other mineral oils according to the general terms and conditions
provided by law, based on real contributions to the economic growth and general welfare of
the country. In such agreements, the State shall promote the development and use of local
scientific and technical resources. (emphasis supplied)
The emphasized portion of Sec. 2 which focuses on the State entering into different types of
agreements for the exploration, development, and utilization of natural resources with
entities who are deemed Filipino due to 60 percent ownership of capital is pertinent to this
case, since the issues are centered on the utilization of our countrys natural resources or
specifically, mining. Thus, there is a need to ascertain the nationality of petitioners since, as
the Constitution so provides, such agreements are only allowed corporations or associations
"at least 60 percent of such capital is owned by such citizens." The deliberations in the
Records of the 1986 Constitutional Commission shed light on how a citizenship of a
corporation will be determined:
Mr. BENNAGEN: Did I hear right that the Chairmans interpretation of an independent
national economy is freedom from undue foreign control? What is the meaning of undue
foreign control?
MR. VILLEGAS: Undue foreign control is foreign control which sacrifices national sovereignty
and the welfare of the Filipino in the economic sphere.
MR. BENNAGEN: Why does it have to be qualified still with the word "undue"? Why not
simply freedom from foreign control? I think that is the meaning of independence, because
as phrased, it still allows for foreign control.
MR. VILLEGAS: It will now depend on the interpretation because if, for example, we retain
the 60/40 possibility in the cultivation of natural resources, 40 percent involves some
control; not total control, but some control.
MR. BENNAGEN: In any case, I think in due time we will propose some amendments.
MR. VILLEGAS: Yes. But we will be open to improvement of the phraseology.
Mr. BENNAGEN: Yes.
Thank you, Mr. Vice-President.
xxxx
MR. NOLLEDO: In Sections 3, 9 and 15, the Committee stated local or Filipino equity and
foreign equity; namely, 60-40 in Section 3, 60-40 in Section 9, and 2/3-1/3 in Section 15.
MR. VILLEGAS: That is right.
MR. NOLLEDO: In teaching law, we are always faced with the question: Where do we base
the equity requirement, is it on the authorized capital stock, on the subscribed capital stock,
or on the paid-up capital stock of a corporation? Will the Committee please enlighten me on
this?

MR. VILLEGAS: We have just had a long discussion with the members of the team from the
UP Law Center who provided us with a draft. The phrase that is contained here which we
adopted from the UP draft is 60 percent of the voting stock.
MR. NOLLEDO: That must be based on the subscribed capital stock, because unless declared
delinquent, unpaid capital stock shall be entitled to vote.
MR. VILLEGAS: That is right.
MR. NOLLEDO: Thank you.
With respect to an investment by one corporation in another corporation, say, a corporation
with 60-40 percent equity invests in another corporation which is permitted by the
Corporation Code, does the Committee adopt the grandfather rule?
MR. VILLEGAS: Yes, that is the understanding of the Committee.
MR. NOLLEDO: Therefore, we need additional Filipino capital?
MR. VILLEGAS: Yes.42 (emphasis supplied)
It is apparent that it is the intention of the framers of the Constitution to apply the
grandfather rule in cases where corporate layering is present.
Elementary in statutory construction is when there is conflict between the Constitution and a
statute, the Constitution will prevail. In this instance, specifically pertaining to the provisions
under Art. XII of the Constitution on National Economy and Patrimony, Sec. 3 of the FIA will
have no place of application. As decreed by the honorable framers of our Constitution, the
grandfather rule prevails and must be applied.
Likewise, paragraph 7, DOJ Opinion No. 020, Series of 2005 provides:
The above-quoted SEC Rules provide for the manner of calculating the Filipino interest in a
corporation for purposes, among others, of determining compliance with nationality
requirements (the Investee Corporation). Such manner of computation is necessary since
the shares in the Investee Corporation may be owned both by individual stockholders
(Investing Individuals) and by corporations and partnerships (Investing Corporation). The
said rules thus provide for the determination of nationality depending on the ownership of
the Investee Corporation and, in certain instances, the Investing Corporation.
Under the above-quoted SEC Rules, there are two cases in determining the nationality of the
Investee Corporation. The first case is the liberal rule, later coined by the SEC as the
Control Test in its 30 May 1990 Opinion, and pertains to the portion in said Paragraph 7 of
the 1967 SEC Rules which states, (s)hares belonging to corporations or partnerships at least
60% of the capital of which is owned by Filipino citizens shall be considered as of Philippine
nationality. Under the liberal Control Test, there is no need to further trace the ownership of
the 60% (or more) Filipino stockholdings of the Investing Corporation since a corporation
which is at least 60% Filipino-owned is considered as Filipino.
The second case is the Strict Rule or the Grandfather Rule Proper and pertains to the portion
in said Paragraph 7 of the 1967 SEC Rules which states, "but if the percentage of Filipino
ownership in the corporation or partnership is less than 60%, only the number of shares
corresponding to such percentage shall be counted as of Philippine nationality." Under the
Strict Rule or Grandfather Rule Proper, the combined totals in the Investing Corporation and
the Investee Corporation must be traced (i.e., "grandfathered") to determine the total
percentage of Filipino ownership.
Moreover, the ultimate Filipino ownership of the shares must first be traced to the level of
the Investing Corporation and added to the shares directly owned in the Investee
Corporation x x x.
xxxx
In other words, based on the said SEC Rule and DOJ Opinion, the Grandfather Rule or the
second part of the SEC Rule applies only when the 60-40 Filipino-foreign equity ownership is
in doubt (i.e., in cases where the joint venture corporation with Filipino and foreign
stockholders with less than 60% Filipino stockholdings [or 59%] invests in other joint venture
corporation which is either 60-40% Filipino-alien or the 59% less Filipino). Stated differently,

where the 60-40 Filipino- foreign equity ownership is not in doubt, the Grandfather Rule will
not apply. (emphasis supplied)
After a scrutiny of the evidence extant on record, the Court finds that this case calls for the
application of the grandfather rule since, as ruled by the POA and affirmed by the OP, doubt
prevails and persists in the corporate ownership of petitioners. Also, as found by the CA,
doubt is present in the 60-40 Filipino equity ownership of petitioners Narra, McArthur and
Tesoro, since their common investor, the 100% Canadian corporationMBMI, funded them.
However, petitioners also claim that there is "doubt" only when the stockholdings of Filipinos
are less than 60%.43
The assertion of petitioners that "doubt" only exists when the stockholdings are less than
60% fails to convince this Court. DOJ Opinion No. 20, which petitioners quoted in their
petition, only made an example of an instance where "doubt" as to the ownership of the
corporation exists. It would be ludicrous to limit the application of the said word only to the
instances where the stockholdings of non-Filipino stockholders are more than 40% of the
total stockholdings in a corporation. The corporations interested in circumventing our laws
would clearly strive to have "60% Filipino Ownership" at face value. It would be senseless for
these applying corporations to state in their respective articles of incorporation that they
have less than 60% Filipino stockholders since the applications will be denied instantly. Thus,
various corporate schemes and layerings are utilized to circumvent the application of the
Constitution.
Obviously, the instant case presents a situation which exhibits a scheme employed by
stockholders to circumvent the law, creating a cloud of doubt in the Courts mind. To
determine, therefore, the actual participation, direct or indirect, of MBMI, the grandfather
rule must be used.
McArthur Mining, Inc.
To establish the actual ownership, interest or participation of MBMI in each of petitioners
corporate structure, they have to be "grandfathered."
As previously discussed, McArthur acquired its MPSA application from MMC, which acquired
its application from SMMI. McArthur has a capital stock of ten million pesos (PhP 10,000,000)
divided into 10,000 common shares at one thousand pesos (PhP 1,000) per share,
subscribed to by the following:44
Name

Nationali
ty

Number of
Shares

Amount
Subscribed

Amount Paid

Madridejos Mining
Corporation

Filipino

5,997

PhP
5,997,000.00

PhP 825,000.00

MBMI
Resources, Inc.

Canadian

3,998

PhP 3,998,000.0

PhP 1,878,174.60

Lauro L. Salazar

Filipino

PhP 1,000.00

PhP 1,000.00

Fernando B.
Esguerra

Filipino

PhP 1,000.00

PhP 1,000.00

Manuel A. Agcaoili

Filipino

PhP 1,000.00

PhP 1,000.00

Michael T. Mason

American

PhP 1,000.00

PhP 1,000.00

Kenneth Cawkell

Canadian

PhP 1,000.00

PhP 1,000.00

Total

10,000

PhP
10,000,000.00

PhP 2,708,174.60
(emphasis
supplied)

Interestingly, looking at the corporate structure of MMC, we take note that it has a similar
structure and composition as McArthur. In fact, it would seem that MBMI is also a major

investor and "controls"45 MBMI and also, similar nominal shareholders were present, i.e.
Fernando B. Esguerra (Esguerra), Lauro L. Salazar (Salazar), Michael T. Mason (Mason) and
Kenneth Cawkell (Cawkell):
Madridejos Mining Corporation
Name

Nationali
ty

Number of
Shares

Amount
Subscribed

Amount Paid

Filipino

6,663

PhP 6,663,000.00

PhP 0

Canadian

3,331

PhP 3,331,000.00

PhP 2,803,900.00

Amanti Limson

Filipino

PhP 1,000.00

PhP 1,000.00

Fernando B.
Esguerra

Filipino

PhP 1,000.00

PhP 1,000.00

Lauro Salazar

Filipino

PhP 1,000.00

PhP 1,000.00

Emmanuel G.
Hernando

Filipino

PhP 1,000.00

PhP 1,000.00

Michael T.
Mason

American

PhP 1,000.00

PhP 1,000.00

Kenneth
Cawkell

Canadian

PhP 1,000.00

PhP 1,000.00

Total

10,000

PhP
10,000,000.00

PhP 2,809,900.00
(emphasis
supplied)

Olympic
Mines &
Development
Corp.
MBMI
Resources,
Inc.

Noticeably, Olympic Mines & Development Corporation (Olympic) did not pay any amount
with respect to the number of shares they subscribed to in the corporation, which is quite
absurd since Olympic is the major stockholder in MMC. MBMIs 2006 Annual Report sheds
light on why Olympic failed to pay any amount with respect to the number of shares it
subscribed to. It states that Olympic entered into joint venture agreements with several
Philippine companies, wherein it holds directly and indirectly a 60% effective equity interest
in the Olympic Properties.46 Quoting the said Annual report:
On September 9, 2004, the Company and Olympic Mines & Development Corporation
("Olympic") entered into a series of agreements including a Property Purchase and
Development Agreement (the Transaction Documents) with respect to three nickel laterite
properties in Palawan, Philippines (the "Olympic Properties"). The Transaction Documents
effectively establish a joint venture between the Company and Olympic for purposes of
developing the Olympic Properties. The Company holds directly and indirectly an initial 60%
interest in the joint venture. Under certain circumstances and upon achieving certain
milestones, the Company may earn up to a 100% interest, subject to a 2.5% net revenue
royalty.47 (emphasis supplied)
Thus, as demonstrated in this first corporation, McArthur, when it is "grandfathered,"
company layering was utilized by MBMI to gain control over McArthur. It is apparent that

MBMI has more than 60% or more equity interest in McArthur, making the latter a foreign
corporation.
Tesoro Mining and Development, Inc.
Tesoro, which acquired its MPSA application from SMMI, has a capital stock of ten million
pesos (PhP 10,000,000) divided into ten thousand (10,000) common shares at PhP 1,000 per
share, as demonstrated below:
[[reference = http://sc.judiciary.gov.ph/pdf/web/viewer.html?
file=/jurisprudence/2014/april2014/195580.pdf]]
Name

Nationalit
y

Number
of
Shares

Amount
Subscribed

Amount Paid

Filipino

5,997

PhP
5,997,000.00

PhP 825,000.00

MBMI
Resources, Inc.

Canadian

3,998

PhP
3,998,000.00

PhP 1,878,174.60

Lauro L. Salazar

Filipino

PhP 1,000.00

PhP 1,000.00

Fernando B.
Esguerra

Filipino

PhP 1,000.00

PhP 1,000.00

Manuel A.
Agcaoili

Filipino

PhP 1,000.00

PhP 1,000.00

Michael T. Mason

American

PhP 1,000.00

PhP 1,000.00

Kenneth Cawkell

Canadian

PhP 1,000.00

PhP 1,000.00

Total

10,000

PhP
10,000,000.00

PhP 2,708,174.60
(emphasis
supplied)

Sara Marie
Mining, Inc.

Except for the name "Sara Marie Mining, Inc.," the table above shows exactly the same
figures as the corporate structure of petitioner McArthur, down to the last centavo. All the
other shareholders are the same: MBMI, Salazar, Esguerra, Agcaoili, Mason and Cawkell. The
figures under "Nationality," "Number of Shares," "Amount Subscribed," and "Amount Paid"
are exactly the same. Delving deeper, we scrutinize SMMIs corporate structure:
Sara Marie Mining, Inc.
[[reference = http://sc.judiciary.gov.ph/pdf/web/viewer.html?
file=/jurisprudence/2014/april2014/195580.pdf]]
Name

Olympic Mines
&
Development
Corp.

Nationalit
y

Number
of
Shares

Amount
Subscribed

Amount Paid

Filipino

6,663

PhP
6,663,000.00

PhP 0

MBMI
Resources,
Inc.

Canadian

3,331

PhP
3,331,000.00

PhP 2,794,000.00

Amanti Limson

Filipino

PhP 1,000.00

PhP 1,000.00

Fernando B.
Esguerra

Filipino

PhP 1,000.00

PhP 1,000.00

Lauro Salazar

Filipino

PhP 1,000.00

PhP 1,000.00

Emmanuel G.
Hernando

Filipino

PhP 1,000.00

PhP 1,000.00

Michael T. Mason

American

PhP 1,000.00

PhP 1,000.00

Kenneth Cawkell

Canadian

PhP 1,000.00

PhP 1,000.00

Total

10,000

PhP
10,000,000.00

PhP 2,809,900.00
(emphasis
supplied)

After subsequently studying SMMIs corporate structure, it is not farfetched for us to spot the
glaring similarity between SMMI and MMCs corporate structure. Again, the presence of
identical stockholders, namely: Olympic, MBMI, Amanti Limson (Limson), Esguerra, Salazar,
Hernando, Mason and Cawkell. The figures under the headings "Nationality," "Number of
Shares," "Amount Subscribed," and "Amount Paid" are exactly the same except for the
amount paid by MBMI which now reflects the amount of two million seven hundred ninety
four thousand pesos (PhP 2,794,000). Oddly, the total value of the amount paid is two
million eight hundred nine thousand nine hundred pesos (PhP 2,809,900).
Accordingly, after "grandfathering" petitioner Tesoro and factoring in Olympics participation
in SMMIs corporate structure, it is clear that MBMI is in control of Tesoro and owns 60% or
more equity interest in Tesoro. This makes petitioner Tesoro a non-Filipino corporation and,
thus, disqualifies it to participate in the exploitation, utilization and development of our
natural resources.
Narra Nickel Mining and Development Corporation
Moving on to the last petitioner, Narra, which is the transferee and assignee of PLMDCs
MPSA application, whose corporate structures arrangement is similar to that of the first two
petitioners discussed. The capital stock of Narra is ten million pesos (PhP 10,000,000), which
is divided into ten thousand common shares (10,000) at one thousand pesos (PhP 1,000) per
share, shown as follows:
[[reference = http://sc.judiciary.gov.ph/pdf/web/viewer.html?
file=/jurisprudence/2014/april2014/195580.pdf]]
Name

Patricia Louise
Mining &
Development
Corp.

Nationalit
y

Number
of
Shares

Amount
Subscribed

Amount Paid

Filipino

5,997

PhP
5,997,000.00

PhP 1,677,000.00

MBMI
Resources, Inc.

Canadian

3,998

PhP
3,996,000.00

PhP 1,116,000.00

Higinio C.
Mendoza, Jr.

Filipino

PhP 1,000.00

PhP 1,000.00

Henry E.
Fernandez

Filipino

PhP 1,000.00

PhP 1,000.00

Manuel A.
Agcaoili

Filipino

PhP 1,000.00

PhP 1,000.00

Ma. Elena A.
Bocalan

Filipino

PhP 1,000.00

PhP 1,000.00

Bayani H. Agabin

Filipino

PhP 1,000.00

PhP 1,000.00

Robert L.
McCurdy

American

PhP 1,000.00

PhP 1,000.00

Kenneth Cawkell

Canadian

PhP 1,000.00

PhP 1,000.00

Total

10,000

PhP
10,000,000.00

PhP 2,800,000.00
(emphasis
supplied)

Again, MBMI, along with other nominal stockholders, i.e., Mason, Agcaoili and Esguerra, is
present in this corporate structure.
Patricia Louise Mining & Development Corporation
Using the grandfather method, we further look and examine PLMDCs corporate structure:
Name
Palawan Alpha South
Resources Development
Corporation

Nationali Number of
ty
Shares

Amount
Subscribed

Amount
Paid

Filipino

6,596

PhP
6,596,000.00

PhP 0

Canadian

3,396

PhP
3,396,000.00

PhP
2,796,000.00

Higinio C. Mendoza, Jr.

Filipino

PhP 1,000.00

PhP 1,000.00

Fernando B. Esguerra

Filipino

PhP 1,000.00

PhP 1,000.00

Henry E. Fernandez

Filipino

PhP 1,000.00

PhP 1,000.00

Lauro L. Salazar

Filipino

PhP 1,000.00

PhP 1,000.00

Manuel A. Agcaoili

Filipino

PhP 1,000.00

PhP 1,000.00

Bayani H. Agabin

Filipino

PhP 1,000.00

PhP 1,000.00

Michael T. Mason

American

PhP 1,000.00

PhP 1,000.00

Kenneth Cawkell

Canadian

PhP 1,000.00

PhP 1,000.00

MBMI Resources,
Inc.

Total

10,000

PhP
10,000,000.00

PhP
2,708,174.60
(emphasis
supplied)

Yet again, the usual players in petitioners corporate structures are present. Similarly, the
amount of money paid by the 2nd tier majority stock holder, in this case, Palawan Alpha
South Resources and Development Corp. (PASRDC), is zero.
Studying MBMIs Summary of Significant Accounting Policies dated October 31, 2005
explains the reason behind the intricate corporate layering that MBMI immersed itself in:
JOINT VENTURES The Companys ownership interests in various mining ventures engaged in
the acquisition, exploration and development of mineral properties in the Philippines is
described as follows:
(a) Olympic Group
The Philippine companies holding the Olympic Property, and the ownership and interests
therein, are as follows:
Olympic- Philippines (the "Olympic Group")
Sara Marie Mining Properties Ltd. ("Sara Marie") 33.3%
Tesoro Mining & Development, Inc. (Tesoro) 60.0%
Pursuant to the Olympic joint venture agreement the Company holds directly and indirectly
an effective equity interest in the Olympic Property of 60.0%. Pursuant to a shareholders
agreement, the Company exercises joint control over the companies in the Olympic Group.
(b) Alpha Group
The Philippine companies holding the Alpha Property, and the ownership interests therein,
are as follows:
Alpha- Philippines (the "Alpha Group")
Patricia Louise Mining Development Inc. ("Patricia") 34.0%
Narra Nickel Mining & Development Corporation (Narra) 60.4%
Under a joint venture agreement the Company holds directly and indirectly an effective
equity interest in the Alpha Property of 60.4%. Pursuant to a shareholders agreement, the
Company exercises joint control over the companies in the Alpha Group. 48 (emphasis
supplied)
Concluding from the above-stated facts, it is quite safe to say that petitioners McArthur,
Tesoro and Narra are not Filipino since MBMI, a 100% Canadian corporation, owns 60% or
more of their equity interests. Such conclusion is derived from grandfathering petitioners
corporate owners, namely: MMI, SMMI and PLMDC. Going further and adding to the picture,
MBMIs Summary of Significant Accounting Policies statement regarding the "joint venture"
agreements that it entered into with the "Olympic" and "Alpha" groupsinvolves SMMI,
Tesoro, PLMDC and Narra. Noticeably, the ownership of the "layered" corporations boils down
to MBMI, Olympic or corporations under the "Alpha" group wherein MBMI has joint venture
agreements with, practically exercising majority control over the corporations mentioned. In
effect, whether looking at the capital structure or the underlying relationships between and
among the corporations, petitioners are NOT Filipino nationals and must be considered
foreign since 60% or more of their capital stocks or equity interests are owned by MBMI.
Application of the res inter alios acta rule
Petitioners question the CAs use of the exception of the res inter alios acta or the
"admission by co-partner or agent" rule and "admission by privies" under the Rules of Court
in the instant case, by pointing out that statements made by MBMI should not be admitted in
this case since it is not a party to the case and that it is not a "partner" of petitioners.
Secs. 29 and 31, Rule 130 of the Revised Rules of Court provide:

Sec. 29. Admission by co-partner or agent.- The act or declaration of a partner or agent of
the party within the scope of his authority and during the existence of the partnership or
agency, may be given in evidence against such party after the partnership or agency is
shown by evidence other than such act or declaration itself. The same rule applies to the act
or declaration of a joint owner, joint debtor, or other person jointly interested with the party.
Sec. 31. Admission by privies.- Where one derives title to property from another, the act,
declaration, or omission of the latter, while holding the title, in relation to the property, is
evidence against the former.
Petitioners claim that before the above-mentioned Rule can be applied to a case, "the
partnership relation must be shown, and that proof of the fact must be made by evidence
other than the admission itself."49 Thus, petitioners assert that the CA erred in finding that a
partnership relationship exists between them and MBMI because, in fact, no such
partnership exists.
Partnerships vs. joint venture agreements
Petitioners claim that the CA erred in applying Sec. 29, Rule 130 of the Rules by stating that
"by entering into a joint venture, MBMI have a joint interest" with Narra, Tesoro and
McArthur. They challenged the conclusion of the CA which pertains to the close
characteristics of
"partnerships" and "joint venture agreements." Further, they asserted that before this
particular partnership can be formed, it should have been formally reduced into writing since
the capital involved is more than three thousand pesos (PhP 3,000). Being that there is no
evidence of written agreement to form a partnership between petitioners and MBMI, no
partnership was created.
We disagree.
A partnership is defined as two or more persons who bind themselves to contribute money,
property, or industry to a common fund with the intention of dividing the profits among
themselves.50 On the other hand, joint ventures have been deemed to be "akin" to
partnerships since it is difficult to distinguish between joint ventures and partnerships. Thus:
[T]he relations of the parties to a joint venture and the nature of their association are so
similar and closely akin to a partnership that it is ordinarily held that their rights, duties, and
liabilities are to be tested by rules which are closely analogous to and substantially the
same, if not exactly the same, as those which govern partnership. In fact, it has been said
that the trend in the law has been to blur the distinctions between a partnership and a joint
venture, very little law being found applicable to one that does not apply to the other. 51
Though some claim that partnerships and joint ventures are totally different animals, there
are very few rules that differentiate one from the other; thus, joint ventures are deemed
"akin" or similar to a partnership. In fact, in joint venture agreements, rules and legal
incidents governing partnerships are applied. 52
Accordingly, culled from the incidents and records of this case, it can be assumed that the
relationships entered between and among petitioners and MBMI are no simple "joint venture
agreements." As a rule, corporations are prohibited from entering into partnership
agreements; consequently, corporations enter into joint venture agreements with other
corporations or partnerships for certain transactions in order to form "pseudo partnerships."
Obviously, as the intricate web of "ventures" entered into by and among petitioners and
MBMI was executed to circumvent the legal prohibition against corporations entering into
partnerships, then the relationship created should be deemed as "partnerships," and the
laws on partnership should be applied. Thus, a joint venture agreement between and among
corporations may be seen as similar to partnerships since the elements of partnership are
present.
Considering that the relationships found between petitioners and MBMI are considered to be
partnerships, then the CA is justified in applying Sec. 29, Rule 130 of the Rules by stating
that "by entering into a joint venture, MBMI have a joint interest" with Narra, Tesoro and
McArthur.

Panel of Arbitrators jurisdiction

We affirm the ruling of the CA in declaring that the POA has jurisdiction over the instant
case. The POA has jurisdiction to settle disputes over rights to mining areas which definitely
involve the petitions filed by Redmont against petitioners Narra, McArthur and Tesoro.
Redmont, by filing its petition against petitioners, is asserting the right of Filipinos over
mining areas in the Philippines against alleged foreign-owned mining corporations. Such
claim constitutes a "dispute" found in Sec. 77 of RA 7942:
Within thirty (30) days, after the submission of the case by the parties for the decision, the
panel shall have exclusive and original jurisdiction to hear and decide the following:
(a) Disputes involving rights to mining areas
(b) Disputes involving mineral agreements or permits
We held in Celestial Nickel Mining Exploration Corporation v. Macroasia Corp.: 53
The phrase "disputes involving rights to mining areas" refers to any adverse claim, protest,
or opposition to an application for mineral agreement. The POA therefore has the jurisdiction
to resolve any adverse claim, protest, or opposition to a pending application for a mineral
agreement filed with the concerned Regional Office of the MGB. This is clear from Secs. 38
and 41 of the DENR AO 96-40, which provide:
Sec. 38.
xxxx
Within thirty (30) calendar days from the last date of publication/posting/radio
announcements, the authorized officer(s) of the concerned office(s) shall issue a
certification(s) that the publication/posting/radio announcement have been complied with.
Any adverse claim, protest, opposition shall be filed directly, within thirty (30) calendar days
from the last date of publication/posting/radio announcement, with the concerned Regional
Office or through any concerned PENRO or CENRO for filing in the concerned Regional Office
for purposes of its resolution by the Panel of Arbitrators pursuant to the provisions of this Act
and these implementing rules and regulations. Upon final resolution of any adverse claim,
protest or opposition, the Panel of Arbitrators shall likewise issue a certification to that effect
within five (5) working days from the date of finality of resolution thereof. Where there is no
adverse claim, protest or opposition, the Panel of Arbitrators shall likewise issue a
Certification to that effect within five working days therefrom.
xxxx
No Mineral Agreement shall be approved unless the requirements under this Section are fully
complied with and any adverse claim/protest/opposition is finally resolved by the Panel of
Arbitrators.
Sec. 41.
xxxx
Within fifteen (15) working days form the receipt of the Certification issued by the Panel of
Arbitrators as provided in Section 38 hereof, the concerned Regional Director shall initially
evaluate the Mineral Agreement applications in areas outside Mineral reservations. He/She
shall thereafter endorse his/her findings to the Bureau for further evaluation by the Director
within fifteen (15) working days from receipt of forwarded documents. Thereafter, the
Director shall endorse the same to the secretary for consideration/approval within fifteen
working days from receipt of such endorsement.
In case of Mineral Agreement applications in areas with Mineral Reservations, within fifteen
(15) working days from receipt of the Certification issued by the Panel of Arbitrators as
provided for in Section 38 hereof, the same shall be evaluated and endorsed by the Director
to the Secretary for consideration/approval within fifteen days from receipt of such
endorsement. (emphasis supplied)
It has been made clear from the aforecited provisions that the "disputes involving rights to
mining areas" under Sec. 77(a) specifically refer only to those disputes relative to the
applications for a mineral agreement or conferment of mining rights.

The jurisdiction of the POA over adverse claims, protest, or oppositions to a mining right
application is further elucidated by Secs. 219 and 43 of DENR AO 95-936, which read:
Sec. 219. Filing of Adverse Claims/Conflicts/Oppositions.- Notwithstanding the provisions of
Sections 28, 43 and 57 above, any adverse claim, protest or opposition specified in said
sections may also be filed directly with the Panel of Arbitrators within the concerned periods
for filing such claim, protest or opposition as specified in said Sections.
Sec. 43. Publication/Posting of Mineral Agreement.xxxx
The Regional Director or concerned Regional Director shall also cause the posting of the
application on the bulletin boards of the Bureau, concerned Regional office(s) and in the
concerned province(s) and municipality(ies), copy furnished the barangays where the
proposed contract area is located once a week for two (2) consecutive weeks in a language
generally understood in the locality. After forty-five (45) days from the last date of
publication/posting has been made and no adverse claim, protest or opposition was filed
within the said forty-five (45) days, the concerned offices shall issue a certification that
publication/posting has been made and that no adverse claim, protest or opposition of
whatever nature has been filed. On the other hand, if there be any adverse claim, protest or
opposition, the same shall be filed within forty-five (45) days from the last date of
publication/posting, with the Regional Offices concerned, or through the Departments
Community Environment and Natural Resources Officers (CENRO) or Provincial Environment
and Natural Resources Officers (PENRO), to be filed at the Regional Office for resolution of
the Panel of Arbitrators. However previously published valid and subsisting mining claims are
exempted from posted/posting required under this Section.
No mineral agreement shall be approved unless the requirements under this section are fully
complied with and any opposition/adverse claim is dealt with in writing by the Director and
resolved by the Panel of Arbitrators. (Emphasis supplied.)
It has been made clear from the aforecited provisions that the "disputes involving rights to
mining areas" under Sec. 77(a) specifically refer only to those disputes relative to the
applications for a mineral agreement or conferment of mining rights.
The jurisdiction of the POA over adverse claims, protest, or oppositions to a mining right
application is further elucidated by Secs. 219 and 43 of DENRO AO 95-936, which reads:
Sec. 219. Filing of Adverse Claims/Conflicts/Oppositions.- Notwithstanding the provisions of
Sections 28, 43 and 57 above, any adverse claim, protest or opposition specified in said
sections may also be filed directly with the Panel of Arbitrators within the concerned periods
for filing such claim, protest or opposition as specified in said Sections.
Sec. 43. Publication/Posting of Mineral Agreement Application.xxxx
The Regional Director or concerned Regional Director shall also cause the posting of the
application on the bulletin boards of the Bureau, concerned Regional office(s) and in the
concerned province(s) and municipality(ies), copy furnished the barangays where the
proposed contract area is located once a week for two (2) consecutive weeks in a language
generally understood in the locality. After forty-five (45) days from the last date of
publication/posting has been made and no adverse claim, protest or opposition was filed
within the said forty-five (45) days, the concerned offices shall issue a certification that
publication/posting has been made and that no adverse claim, protest or opposition of
whatever nature has been filed. On the other hand, if there be any adverse claim, protest or
opposition, the same shall be filed within forty-five (45) days from the last date of
publication/posting, with the Regional offices concerned, or through the Departments
Community Environment and Natural Resources Officers (CENRO) or Provincial Environment
and Natural Resources Officers (PENRO), to be filed at the Regional Office for resolution of
the Panel of Arbitrators. However, previously published valid and subsisting mining claims
are exempted from posted/posting required under this Section.

No mineral agreement shall be approved unless the requirements under this section are fully
complied with and any opposition/adverse claim is dealt with in writing by the Director and
resolved by the Panel of Arbitrators. (Emphasis supplied.)
These provisions lead us to conclude that the power of the POA to resolve any adverse
claim, opposition, or protest relative to mining rights under Sec. 77(a) of RA 7942 is confined
only to adverse claims, conflicts and oppositions relating to applications for the grant of
mineral rights.
POAs jurisdiction is confined only to resolutions of such adverse claims, conflicts and
oppositions and it has no authority to approve or reject said applications. Such power is
vested in the DENR Secretary upon recommendation of the MGB Director. Clearly, POAs
jurisdiction over "disputes involving rights to mining areas" has nothing to do with the
cancellation of existing mineral agreements. (emphasis ours)
Accordingly, as we enunciated in Celestial, the POA unquestionably has jurisdiction to
resolve disputes over MPSA applications subject of Redmonts petitions. However, said
jurisdiction does not include either the approval or rejection of the MPSA applications, which
is vested only upon the Secretary of the DENR. Thus, the finding of the POA, with respect to
the rejection of petitioners MPSA applications being that they are foreign corporation, is
valid.
Justice Marvic Mario Victor F. Leonen, in his Dissent, asserts that it is the regular courts, not
the POA, that has jurisdiction over the MPSA applications of petitioners.
This postulation is incorrect.
It is basic that the jurisdiction of the court is determined by the statute in force at the time
of the commencement of the action.54
Sec. 19, Batas Pambansa Blg. 129 or "The Judiciary Reorganization
Act of 1980" reads:
Sec. 19. Jurisdiction in Civil Cases.Regional Trial Courts shall exercise exclusive original
jurisdiction:
1. In all civil actions in which the subject of the litigation is incapable of pecuniary
estimation.
On the other hand, the jurisdiction of POA is unequivocal from Sec. 77 of RA 7942:
Section 77. Panel of Arbitrators.
x x x Within thirty (30) days, after the submission of the case by the parties for the
decision, the panel shall have exclusive and original jurisdiction to hear and decide
the following:
(c) Disputes involving rights to mining areas
(d) Disputes involving mineral agreements or permits
It is clear that POA has exclusive and original jurisdiction over any and all disputes involving
rights to mining areas. One such dispute is an MPSA application to which an adverse claim,
protest or opposition is filed by another interested applicant.1wphi1 In the case at bar, the
dispute arose or originated from MPSA applications where petitioners are asserting their
rights to mining areas subject of their respective MPSA applications. Since respondent filed 3
separate petitions for the denial of said applications, then a controversy has developed
between the parties and it is POAs jurisdiction to resolve said disputes.
Moreover, the jurisdiction of the RTC involves civil actions while what petitioners filed with
the DENR Regional Office or any concerned DENRE or CENRO are MPSA applications. Thus
POA has jurisdiction.
Furthermore, the POA has jurisdiction over the MPSA applications under the doctrine of
primary jurisdiction. Euro-med Laboratories v. Province of Batangas 55 elucidates:
The doctrine of primary jurisdiction holds that if a case is such that its determination
requires the expertise, specialized training and knowledge of an administrative body, relief

must first be obtained in an administrative proceeding before resort to the courts is had
even if the matter may well be within their proper jurisdiction.
Whatever may be the decision of the POA will eventually reach the court system via a resort
to the CA and to this Court as a last recourse.
Selling of MBMIs shares to DMCI
As stated before, petitioners Manifestation and Submission dated October 19, 2012 would
want us to declare the instant petition moot and academic due to the transfer and
conveyance of all the shareholdings and interests of MBMI to DMCI, a corporation duly
organized and existing under Philippine laws and is at least 60% Philippineowned.56 Petitioners reasoned that they now cannot be considered as foreign-owned; the
transfer of their shares supposedly cured the "defect" of their previous nationality. They
claimed that their current FTAA contract with the State should stand since "even whollyowned foreign corporations can enter into an FTAA with the State." 57Petitioners stress that
there should no longer be any issue left as regards their qualification to enter into FTAA
contracts since they are qualified to engage in mining activities in the Philippines. Thus,
whether the "grandfather rule" or the "control test" is used, the nationalities of petitioners
cannot be doubted since it would pass both tests.
The sale of the MBMI shareholdings to DMCI does not have any bearing in the instant case
and said fact should be disregarded. The manifestation can no longer be considered by us
since it is being tackled in G.R. No. 202877 pending before this Court.1wphi1 Thus, the
question of whether petitioners, allegedly a Philippine-owned corporation due to the sale of
MBMI's shareholdings to DMCI, are allowed to enter into FTAAs with the State is a non-issue
in this case.
In ending, the "control test" is still the prevailing mode of determining whether or not a
corporation is a Filipino corporation, within the ambit of Sec. 2, Art. II of the 1987
Constitution, entitled to undertake the exploration, development and utilization of the
natural resources of the Philippines. When in the mind of the Court there is doubt, based on
the attendant facts and circumstances of the case, in the 60-40 Filipino-equity ownership in
the corporation, then it may apply the "grandfather rule."
WHEREFORE, premises considered, the instant petition is DENIED. The assailed Court of
Appeals Decision dated October 1, 2010 and Resolution dated February 15, 2011 are hereby
AFFIRMED.
SO ORDERED.

[G.R. No. L-32409. February 27, 1971.]

BACHE & CO. (PHIL.), INC. and FREDERICK E. SEGGERMAN, Petitioners, v. HON.
JUDGE VIVENCIO M. RUIZ, MISAEL P. VERA, in his capacity as Commissioner of
Internal Revenue, ARTURO LOGRONIO, RODOLFO DE LEON, GAVINO VELASQUEZ,
MIMIR DELLOSA, NICANOR ALCORDO, JOHN DOE, JOHN DOE, JOHN DOE, and JOHN
DOE, Respondents.
San Juan, Africa, Gonzales & San Agustin, for Petitioners.
Solicitor General Felix Q. Antonio, Assistant Solicitor General Crispin V . Bautista,
Solicitor Pedro A. Ramirez and Special Attorney Jaime M. Maza for Respondents.
DECISION
VILLAMOR, J.:
This is an original action of certiorari, prohibition and mandamus, with prayer for a writ of
preliminary mandatory and prohibitory injunction. In their petition Bache & Co. (Phil.), Inc., a
corporation duly organized and existing under the laws of the Philippines, and its President,
Frederick E. Seggerman, pray this Court to declare null and void Search Warrant No. 2-M-70
issued by respondent Judge on February 25, 1970; to order respondents to desist from
enforcing the same and/or keeping the documents, papers and effects seized by virtue
thereof, as well as from enforcing the tax assessments on petitioner corporation alleged by
petitioners to have been made on the basis of the said documents, papers and effects, and
to order the return of the latter to petitioners. We gave due course to the petition but did not
issue the writ of preliminary injunction prayed for therein.
The pertinent facts of this case, as gathered from record, are as follows:chanrob1es virtual
1aw library
On February 24, 1970, respondent Misael P. Vera, Commissioner of Internal Revenue, wrote a
letter addressed to respondent Judge Vivencio M. Ruiz requesting the issuance of a search
warrant against petitioners for violation of Section 46(a) of the National Internal Revenue
Code, in relation to all other pertinent provisions thereof, particularly Sections 53, 72, 73,
208 and 209, and authorizing Revenue Examiner Rodolfo de Leon, one of herein
respondents, to make and file the application for search warrant which was attached to the
letter.
In the afternoon of the following day, February 25, 1970, respondent De Leon and his
witness, respondent Arturo Logronio, went to the Court of First Instance of Rizal. They
brought with them the following papers: respondent Veras aforesaid letter-request; an
application for search warrant already filled up but still unsigned by respondent De Leon; an
affidavit of respondent Logronio subscribed before respondent De Leon; a deposition in
printed form of respondent Logronio already accomplished and signed by him but not yet
subscribed; and a search warrant already accomplished but still unsigned by respondent
Judge.
At that time respondent Judge was hearing a certain case; so, by means of a note, he
instructed his Deputy Clerk of Court to take the depositions of respondents De Leon and
Logronio. After the session had adjourned, respondent Judge was informed that the
depositions had already been taken. The stenographer, upon request of respondent Judge,

read to him her stenographic notes; and thereafter, respondent Judge asked respondent
Logronio to take the oath and warned him that if his deposition was found to be false and
without legal basis, he could be charged for perjury. Respondent Judge signed respondent de
Leons application for search warrant and respondent Logronios deposition, Search Warrant
No. 2-M-70 was then sign by respondent Judge and accordingly issued.
Three days later, or on February 28, 1970, which was a Saturday, the BIR agents served the
search warrant petitioners at the offices of petitioner corporation on Ayala Avenue, Makati,
Rizal. Petitioners lawyers protested the search on the ground that no formal complaint or
transcript of testimony was attached to the warrant. The agents nevertheless proceeded
with their search which yielded six boxes of documents.
On March 3, 1970, petitioners filed a petition with the Court of First Instance of Rizal praying
that the search warrant be quashed, dissolved or recalled, that preliminary prohibitory and
mandatory writs of injunction be issued, that the search warrant be declared null and void,
and that the respondents be ordered to pay petitioners, jointly and severally, damages and
attorneys fees. On March 18, 1970, the respondents, thru the Solicitor General, filed an
answer to the petition. After hearing, the court, presided over by respondent Judge, issued
on July 29, 1970, an order dismissing the petition for dissolution of the search warrant. In the
meantime, or on April 16, 1970, the Bureau of Internal Revenue made tax assessments on
petitioner corporation in the total sum of P2,594,729.97, partly, if not entirely, based on the
documents thus seized. Petitioners came to this Court.
The petition should be granted for the following reasons:chanrob1es virtual 1aw library
1. Respondent Judge failed to personally examine the complainant and his witness.
The pertinent provisions of the Constitution of the Philippines and of the Revised Rules of
Court are:jgc:chanrobles.com.ph
"(3) The right of the people to be secure in their persons, houses, papers and effects against
unreasonable searches and seizures shall not be violated, and no warrants shall issue but
upon probable cause, to be determined by the judge after examination under oath or
affirmation of the complainant and the witnesses he may produce, and particularly
describing the place to be searched, and the persons or things to be seized." (Art. III, Sec. 1,
Constitution.)
"SEC. 3. Requisites for issuing search warrant. A search warrant shall not issue but upon
probable cause in connection with one specific offense to be determined by the judge or
justice of the peace after examination under oath or affirmation of the complainant and the
witnesses he may produce, and particularly describing the place to be searched and the
persons or things to be seized.
"No search warrant shall issue for more than one specific offense.
"SEC. 4. Examination of the applicant. The judge or justice of the peace must, before
issuing the warrant, personally examine on oath or affirmation the complainant and any
witnesses he may produce and take their depositions in writing, and attach them to the
record, in addition to any affidavits presented to him." (Rule 126, Revised Rules of Court.)
The examination of the complainant and the witnesses he may produce, required by Art. III,
Sec. 1, par. 3, of the Constitution, and by Secs. 3 and 4, Rule 126 of the Revised Rules of
Court, should be conducted by the judge himself and not by others. The phrase "which shall
be determined by the judge after examination under oath or affirmation of the complainant
and the witnesses he may produce," appearing in the said constitutional provision, was

introduced by Delegate Francisco as an amendment to the draft submitted by the SubCommittee of Seven. The following discussion in the Constitutional Convention (Laurel,
Proceedings of the Philippine Constitutional Convention, Vol. III, pp. 755-757) is
enlightening:jgc:chanrobles.com.ph
"SR. ORENSE. Vamos a dejar compaero los piropos y vamos al grano.
En los casos de una necesidad de actuar inmediatamente para que no se frusten los fines de
la justicia mediante el registro inmediato y la incautacion del cuerpo del delito, no cree Su
Seoria que causaria cierta demora el procedimiento apuntado en su enmienda en tal forma
que podria frustrar los fines de la justicia o si Su Seoria encuentra un remedio para esto
casos con el fin de compaginar los fines de la justicia con los derechos del individuo en su
persona, bienes etcetera, etcetera.
"SR. FRANCISCO. No puedo ver en la practica el caso hipottico que Su Seoria pregunta por
la siguiente razon: el que solicita un mandamiento de registro tiene que hacerlo por escrito y
ese escrito no aparecer en la Mesa del Juez sin que alguien vaya el juez a presentar ese
escrito o peticion de sucuestro. Esa persona que presenta el registro puede ser el mismo
denunciante o alguna persona que solicita dicho mandamiento de registro. Ahora toda la
enmienda en esos casos consiste en que haya peticion de registro y el juez no se atendra
solamente a sea peticion sino que el juez examiner a ese denunciante y si tiene testigos
tambin examiner a los testigos.
"SR. ORENSE. No cree Su Seoria que el tomar le declaracion de ese denunciante por escrito
siempre requeriria algun tiempo?.
"SR. FRANCISCO. Seria cuestio de un par de horas, pero por otro lado minimizamos en todo
lo posible las vejaciones injustas con la expedicion arbitraria de los mandamientos de
registro. Creo que entre dos males debemos escoger. el menor.
x

"MR. LAUREL. . . . The reason why we are in favor of this amendment is because we are
incorporating in our constitution something of a fundamental character. Now, before a judge
could issue a search warrant, he must be under the obligation to examine personally under
oath the complainant and if he has any witness, the witnesses that he may
produce . . ."cralaw virtua1aw library
The implementing rule in the Revised Rules of Court, Sec. 4, Rule 126, is more emphatic and
candid, for it requires the judge, before issuing a search warrant, to "personally examine on
oath or affirmation the complainant and any witnesses he may produce . . ."cralaw
virtua1aw library
Personal examination by the judge of the complainant and his witnesses is necessary to
enable him to determine the existence or non-existence of a probable cause, pursuant to
Art. III, Sec. 1, par. 3, of the Constitution, and Sec. 3, Rule 126 of the Revised Rules of Court,
both of which prohibit the issuance of warrants except "upon probable cause." The
determination of whether or not a probable cause exists calls for the exercise of judgment
after a judicial appraisal of facts and should not be allowed to be delegated in the absence
of any rule to the contrary.
In the case at bar, no personal examination at all was conducted by respondent Judge of the
complainant (respondent De Leon) and his witness (respondent Logronio). While it is true
that the complainants application for search warrant and the witness printed-form

deposition were subscribed and sworn to before respondent Judge, the latter did not ask
either of the two any question the answer to which could possibly be the basis for
determining whether or not there was probable cause against herein petitioners. Indeed, the
participants seem to have attached so little significance to the matter that notes of the
proceedings before respondent Judge were not even taken. At this juncture it may be well to
recall the salient facts. The transcript of stenographic notes (pp. 61-76, April 1, 1970, Annex
J-2 of the Petition) taken at the hearing of this case in the court below shows that per
instruction of respondent Judge, Mr. Eleodoro V. Gonzales, Special Deputy Clerk of Court,
took the depositions of the complainant and his witness, and that stenographic notes thereof
were taken by Mrs. Gaspar. At that time respondent Judge was at the sala hearing a case.
After respondent Judge was through with the hearing, Deputy Clerk Gonzales, stenographer
Gaspar, complainant De Leon and witness Logronio went to respondent Judges chamber and
informed the Judge that they had finished the depositions. Respondent Judge then requested
the stenographer to read to him her stenographic notes. Special Deputy Clerk Gonzales
testified as follows:jgc:chanrobles.com.ph
"A And after finishing reading the stenographic notes, the Honorable Judge requested or
instructed them, requested Mr. Logronio to raise his hand and warned him if his deposition
will be found to be false and without legal basis, he can be charged criminally for perjury.
The Honorable Court told Mr. Logronio whether he affirms the facts contained in his
deposition and the affidavit executed before Mr. Rodolfo de Leon.
"Q And thereafter?
"A And thereafter, he signed the deposition of Mr. Logronio.
"Q Who is this he?
"A The Honorable Judge.
"Q The deposition or the affidavit?
"A The affidavit, Your Honor."cralaw virtua1aw library
Thereafter, respondent Judge signed the search warrant.
The participation of respondent Judge in the proceedings which led to the issuance of Search
Warrant No. 2-M-70 was thus limited to listening to the stenographers readings of her notes,
to a few words of warning against the commission of perjury, and to administering the oath
to the complainant and his witness. This cannot be consider a personal examination. If there
was an examination at all of the complainant and his witness, it was the one conducted by
the Deputy Clerk of Court. But, as stated, the Constitution and the rules require a personal
examination by the judge. It was precisely on account of the intention of the delegates to
the Constitutional Convention to make it a duty of the issuing judge to personally examine
the complainant and his witnesses that the question of how much time would be consumed
by the judge in examining them came up before the Convention, as can be seen from the
record of the proceedings quoted above. The reading of the stenographic notes to
respondent Judge did not constitute sufficient compliance with the constitutional mandate
and the rule; for by that manner respondent Judge did not have the opportunity to observe
the demeanor of the complainant and his witness, and to propound initial and follow-up
questions which the judicial mind, on account of its training, was in the best position to
conceive. These were important in arriving at a sound inference on the all-important
question of whether or not there was probable cause.
2. The search warrant was issued for more than one specific offense.

Search Warrant No. 2-M-70 was issued for" [v]iolation of Sec. 46(a) of the National Internal
Revenue Code in relation to all other pertinent provisions thereof particularly Secs. 53, 72,
73, 208 and 209." The question is: Was the said search warrant issued "in connection with
one specific offense," as required by Sec. 3, Rule 126?
To arrive at the correct answer it is essential to examine closely the provisions of the Tax
Code referred to above. Thus we find the following:chanrob1es virtual 1aw library
Sec. 46(a) requires the filing of income tax returns by corporations.
Sec. 53 requires the withholding of income taxes at source.
Sec. 72 imposes surcharges for failure to render income tax returns and for rendering false
and fraudulent returns.
Sec. 73 provides the penalty for failure to pay the income tax, to make a return or to supply
the information required under the Tax Code.
Sec. 208 penalizes" [a]ny person who distills, rectifies, repacks, compounds, or
manufactures any article subject to a specific tax, without having paid the privilege tax
therefore, or who aids or abets in the conduct of illicit distilling, rectifying, compounding, or
illicit manufacture of any article subject to specific tax . . .," and provides that in the case of
a corporation, partnership, or association, the official and/or employee who caused the
violation shall be responsible.
Sec. 209 penalizes the failure to make a return of receipts, sales, business, or gross value of
output removed, or to pay the tax due thereon.
The search warrant in question was issued for at least four distinct offenses under the Tax
Code. The first is the violation of Sec. 46(a), Sec. 72 and Sec. 73 (the filing of income tax
returns), which are interrelated. The second is the violation of Sec. 53 (withholding of income
taxes at source). The third is the violation of Sec. 208 (unlawful pursuit of business or
occupation); and the fourth is the violation of Sec. 209 (failure to make a return of receipts,
sales, business or gross value of output actually removed or to pay the tax due thereon).
Even in their classification the six above-mentioned provisions are embraced in two different
titles: Secs. 46(a), 53, 72 and 73 are under Title II (Income Tax); while Secs. 208 and 209 are
under Title V (Privilege Tax on Business and Occupation).
Respondents argue that Stonehill, Et. Al. v. Diokno, Et Al., L-19550, June 19, 1967 (20 SCRA
383), is not applicable, because there the search warrants were issued for "violation of
Central Bank Laws, Internal Revenue (Code) and Revised Penal Code;" whereas, here Search
Warrant No 2-M-70 was issued for violation of only one code, i.e., the National Internal
Revenue Code. The distinction more apparent than real, because it was precisely on account
of the Stonehill incident, which occurred sometime before the present Rules of Court took
effect on January 1, 1964, that this Court amended the former rule by inserting therein the
phrase "in connection with one specific offense," and adding the sentence "No search
warrant shall issue for more than one specific offense," in what is now Sec. 3, Rule 126. Thus
we said in Stonehill:jgc:chanrobles.com.ph
"Such is the seriousness of the irregularities committed in connection with the disputed
search warrants, that this Court deemed it fit to amend Section 3 of Rule 122 of the former
Rules of Court that a search warrant shall not issue but upon probable cause in connection
with one specific offense. Not satisfied with this qualification, the Court added thereto a
paragraph, directing that no search warrant shall issue for more than one specific offense."

3. The search warrant does not particularly describe the things to be seized.
The documents, papers and effects sought to be seized are described in Search Warrant No.
2-M-70 in this manner:jgc:chanrobles.com.ph
"Unregistered and private books of accounts (ledgers, journals, columnars, receipts and
disbursements books, customers ledgers); receipts for payments received; certificates of
stocks and securities; contracts, promissory notes and deeds of sale; telex and coded
messages; business communications, accounting and business records; checks and check
stubs; records of bank deposits and withdrawals; and records of foreign remittances,
covering the years 1966 to 1970."cralaw virtua1aw library
The description does not meet the requirement in Art III, Sec. 1, of the Constitution, and of
Sec. 3, Rule 126 of the Revised Rules of Court, that the warrant should particularly describe
the things to be seized.
In Stonehill, this Court, speaking thru Mr. Chief Justice Roberto Concepcion,
said:jgc:chanrobles.com.ph
"The grave violation of the Constitution made in the application for the contested search
warrants was compounded by the description therein made of the effects to be searched for
and seized, to wit:chanrob1es virtual 1aw library
Books of accounts, financial records, vouchers, journals, correspondence, receipts, ledgers,
portfolios, credit journals, typewriters, and other documents and/or paper showing all
business transactions including disbursement receipts, balance sheets and related profit and
loss statements.
"Thus, the warrants authorized the search for and seizure of records pertaining to all
business transactions of petitioners herein, regardless of whether the transactions were
legal or illegal. The warrants sanctioned the seizure of all records of the petitioners and the
aforementioned corporations, whatever their nature, thus openly contravening the explicit
command of our Bill of Rights that the things to be seized be particularly described as
well as tending to defeat its major objective: the elimination of general warrants."cralaw
virtua1aw library
While the term "all business transactions" does not appear in Search Warrant No. 2-M-70,
the said warrant nevertheless tends to defeat the major objective of the Bill of Rights, i.e.,
the elimination of general warrants, for the language used therein is so all-embracing as to
include all conceivable records of petitioner corporation, which, if seized, could possibly
render its business inoperative.
In Uy Kheytin, Et. Al. v. Villareal, etc., Et Al., 42 Phil. 886, 896, this Court had occasion to
explain the purpose of the requirement that the warrant should particularly describe the
place to be searched and the things to be seized, to wit:jgc:chanrobles.com.ph
". . . Both the Jones Law (sec. 3) and General Orders No. 58 (sec. 97) specifically require that
a search warrant should particularly describe the place to be searched and the things to be
seized. The evident purpose and intent of this requirement is to limit the things to be seized
to those, and only those, particularly described in the search warrant to leave the officers
of the law with no discretion regarding what articles they shall seize, to the end that
unreasonable searches and seizures may not be made, that abuses may not be
committed. That this is the correct interpretation of this constitutional provision is borne out
by American authorities."cralaw virtua1aw library

The purpose as thus explained could, surely and effectively, be defeated under the search
warrant issued in this case.
A search warrant may be said to particularly describe the things to be seized when the
description therein is as specific as the circumstances will ordinarily allow (People v. Rubio;
57 Phil. 384); or when the description expresses a conclusion of fact not of law by
which the warrant officer may be guided in making the search and seizure (idem., dissent of
Abad Santos, J.,); or when the things described are limited to those which bear direct relation
to the offense for which the warrant is being issued (Sec. 2, Rule 126, Revised Rules of
Court). The herein search warrant does not conform to any of the foregoing tests. If the
articles desired to be seized have any direct relation to an offense committed, the applicant
must necessarily have some evidence, other than those articles, to prove the said offense;
and the articles subject of search and seizure should come in handy merely to strengthen
such evidence. In this event, the description contained in the herein disputed warrant should
have mentioned, at least, the dates, amounts, persons, and other pertinent data regarding
the receipts of payments, certificates of stocks and securities, contracts, promissory notes,
deeds of sale, messages and communications, checks, bank deposits and withdrawals,
records of foreign remittances, among others, enumerated in the warrant.
Respondents contend that certiorari does not lie because petitioners failed to file a motion
for reconsideration of respondent Judges order of July 29, 1970. The contention is without
merit. In the first place, when the questions raised before this Court are the same as those
which were squarely raised in and passed upon by the court below, the filing of a motion for
reconsideration in said court before certiorari can be instituted in this Court is no longer a
prerequisite. (Pajo, etc., Et. Al. v. Ago, Et Al., 108 Phil., 905). In the second place, the rule
requiring the filing of a motion for reconsideration before an application for a writ
of certiorari can be entertained was never intended to be applied without considering the
circumstances. (Matutina v. Buslon, Et Al., 109 Phil., 140.) In the case at bar time is of the
essence in view of the tax assessments sought to be enforced by respondent officers of the
Bureau of Internal Revenue against petitioner corporation, On account of which immediate
and more direct action becomes necessary. (Matute v. Court of Appeals, Et Al., 26 SCRA
768.) Lastly, the rule does not apply where, as in this case, the deprivation of petitioners
fundamental right to due process taints the proceeding against them in the court below not
only with irregularity but also with nullity. (Matute v. Court of Appeals, Et Al., supra.)
It is next contended by respondents that a corporation is not entitled to protection against
unreasonable search and seizures. Again, we find no merit in the contention.
"Although, for the reasons above stated, we are of the opinion that an officer of a
corporation which is charged with a violation of a statute of the state of its creation, or of an
act of Congress passed in the exercise of its constitutional powers, cannot refuse to produce
the books and papers of such corporation, we do not wish to be understood as holding that a
corporation is not entitled to immunity, under the 4th Amendment, against unreasonable
searches and seizures. A corporation is, after all, but an association of individuals under an
assumed name and with a distinct legal entity. In organizing itself as a collective body it
waives no constitutional immunities appropriate to such body. Its property cannot be taken
without compensation. It can only be proceeded against by due process of law, and is
protected, under the 14th Amendment, against unlawful discrimination . . ." (Hale v. Henkel,
201 U.S. 43, 50 L. ed. 652.)
"In Linn v. United States, 163 C.C.A. 470, 251 Fed. 476, 480, it was thought that a different
rule applied to a corporation, the ground that it was not privileged from producing its books
and papers. But the rights of a corporation against unlawful search and seizure are to be
protected even if the same result might have been achieved in a lawful way." (Silverthorne

Lumber Company, Et. Al. v. United States of America, 251 U.S. 385, 64 L. ed. 319.)
In Stonehill, Et. Al. v. Diokno, Et Al., supra, this Court impliedly recognized the right of a
corporation to object against unreasonable searches and seizures,
thus:jgc:chanrobles.com.ph
"As regards the first group, we hold that petitioners herein have no cause of action to assail
the legality of the contested warrants and of the seizures made in pursuance thereof, for the
simple reason that said corporations have their respective personalities, separate and
distinct from the personality of herein petitioners, regardless of the amount of shares of
stock or the interest of each of them in said corporations, whatever, the offices they hold
therein may be. Indeed, it is well settled that the legality of a seizure can be contested only
by the party whose rights have been impaired thereby, and that the objection to an unlawful
search and seizure is purely personal and cannot be availed of by third parties.
Consequently, petitioners herein may not validly object to the use in evidence against them
of the documents, papers and things seized from the offices and premises of the
corporations adverted to above, since the right to object to the admission of said papers in
evidence belongs exclusively to the corporations, to whom the seized effects belong, and
may not be invoked by the corporate officers in proceedings against them in their individual
capacity . . ."cralaw virtua1aw library
In the Stonehill case only the officers of the various corporations in whose offices
documents, papers and effects were searched and seized were the petitioners. In the case at
bar, the corporation to whom the seized documents belong, and whose rights have thereby
been impaired, is itself a petitioner. On that score, petitioner corporation here stands on a
different footing from the corporations in Stonehill.
The tax assessments referred to earlier in this opinion were, if not entirely as claimed by
petitioners at least partly as in effect admitted by respondents based on the
documents seized by virtue of Search Warrant No. 2-M-70. Furthermore, the fact that the
assessments were made some one and one-half months after the search and seizure on
February 25, 1970, is a strong indication that the documents thus seized served as basis for
the assessments. Those assessments should therefore not be enforced.
PREMISES CONSIDERED, the petition is granted. Accordingly, Search Warrant No. 2-M-70
issued by respondent Judge is declared null and void; respondents are permanently enjoined
from enforcing the said search warrant; the documents, papers and effects seized
thereunder are ordered to be returned to petitioners; and respondent officials the Bureau of
Internal Revenue and their representatives are permanently enjoined from enforcing the
assessments mentioned in Annex "G" of the present petition, as well as other assessments
based on the documents, papers and effects seized under the search warrant herein
nullified, and from using the same against petitioners in any criminal or other proceeding.
No pronouncement as to costs.
Concepcion, C.J., Dizon, Makalintal, Zaldivar, Fernando, Teehankee and Makasiar, JJ., concur.
Reyes, J.B.L., J., concurs with Mr. Justice Barredo.
Castro, J., concurs in the result.

G.R. No. 15574

September 17, 1919

SMITH, BELL & COMPANY (LTD.), petitioner,

vs.
JOAQUIN NATIVIDAD, Collector of Customs of the port of Cebu, respondent.
Ross and Lawrence for petitioner.
Attorney-General Paredes for respondent.
MALCOLM, J.:
A writ of mandamus is prayed for by Smith, Bell & Co. (Ltd.), against Joaquin Natividad,
Collector of Customs of the port of Cebu, Philippine Islands, to compel him to issue a
certificate of Philippine registry to the petitioner for its motor vessel Bato. The AttorneyGeneral, acting as counsel for respondent, demurs to the petition on the general ground that
it does not state facts sufficient to constitute a cause of action. While the facts are thus
admitted, and while, moreover, the pertinent provisions of law are clear and understandable,
and interpretative American jurisprudence is found in abundance, yet the issue submitted is
not lightly to be resolved. The question, flatly presented, is, whether Act. No. 2761 of the
Philippine Legislature is valid or, more directly stated, whether the Government of the
Philippine Islands, through its Legislature, can deny the registry of vessels in its coastwise
trade to corporations having alien stockholders.
FACTS.
Smith, Bell & Co., (Ltd.), is a corporation organized and existing under the laws of the
Philippine Islands. A majority of its stockholders are British subjects. It is the owner of a
motor vessel known as the Bato built for it in the Philippine Islands in 1916, of more than
fifteen tons gross The Bato was brought to Cebu in the present year for the purpose of
transporting plaintiff's merchandise between ports in the Islands. Application was made at
Cebu, the home port of the vessel, to the Collector of Customs for a certificate of Philippine
registry. The Collector refused to issue the certificate, giving as his reason that all the
stockholders of Smith, Bell & Co., Ltd., were not citizens either of the United States or of the
Philippine Islands. The instant action is the result.
LAW.
The Act of Congress of April 29, 1908, repealing the Shipping Act of April 30, 1906 but
reenacting a portion of section 3 of this Law, and still in force, provides in its section 1:
That until Congress shall have authorized the registry as vessels of the United States
of vessels owned in the Philippine Islands, the Government of the Philippine Islands is
hereby authorized to adopt, from time to time, and enforce regulations governing the
transportation of merchandise and passengers between ports or places in the
Philippine Archipelago. (35 Stat. at L., 70; Section 3912, U. S. Comp Stat. [1916]; 7
Pub. Laws, 364.)
The Act of Congress of August 29, 1916, commonly known as the Jones Law, still in force,
provides in section 3, (first paragraph, first sentence), 6, 7, 8, 10, and 31, as follows.
SEC. 3. That no law shall be enacted in said Islands which shall deprive any person of
life, liberty, or property without due process of law, or deny to any person therein the
equal protection of the laws. . . .
SEC. 6. That the laws now in force in the Philippines shall continue in force and effect,
except as altered, amended, or modified herein, until altered, amended, or repealed
by the legislative authority herein provided or by Act of Congress of the United
States.

SEC. 7. That the legislative authority herein provided shall have power, when not
inconsistent with this Act, by due enactment to amend, alter modify, or repeal any
law, civil or criminal, continued in force by this Act as it may from time to time see fit
This power shall specifically extend with the limitation herein provided as to the tariff
to all laws relating to revenue provided as to the tariff to all laws relating to revenue
and taxation in effect in the Philippines.
SEC. 8. That general legislative power, except as otherwise herein provided, is hereby
granted to the Philippine Legislature, authorized by this Act.
SEC. 10. That while this Act provides that the Philippine government shall have the
authority to enact a tariff law the trade relations between the islands and the United
States shall continue to be governed exclusively by laws of the Congress of the
United States: Provided, That tariff acts or acts amendatory to the tariff of the
Philippine Islands shall not become law until they shall receive the approval of the
President of the United States, nor shall any act of the Philippine Legislature affecting
immigration or the currency or coinage laws of the Philippines become a law until it
has been approved by the President of the United States: Provided further, That the
President shall approve or disapprove any act mentioned in the foregoing proviso
within six months from and after its enactment and submission for his approval, and
if not disapproved within such time it shall become a law the same as if it had been
specifically approved.
SEC. 31. That all laws or parts of laws applicable to the Philippines not in conflict with
any of the provisions of this Act are hereby continued in force and effect." (39 Stat at
L., 546.)
On February 23, 1918, the Philippine Legislature enacted Act No. 2761. The first section of
this law amended section 1172 of the Administrative Code to read as follows:
SEC. 1172. Certificate of Philippine register. Upon registration of a vessel of
domestic ownership, and of more than fifteen tons gross, a certificate of Philippine
register shall be issued for it. If the vessel is of domestic ownership and of fifteen
tons gross or less, the taking of the certificate of Philippine register shall be optional
with the owner.
"Domestic ownership," as used in this section, means ownership vested in some one
or more of the following classes of persons: (a) Citizens or native inhabitants of the
Philippine Islands; (b) citizens of the United States residing in the Philippine Islands;
(c) any corporation or company composed wholly of citizens of the Philippine Islands
or of the United States or of both, created under the laws of the United States, or of
any State thereof, or of thereof, or the managing agent or master of the vessel
resides in the Philippine Islands
Any vessel of more than fifteen gross tons which on February eighth, nineteen
hundred and eighteen, had a certificate of Philippine register under existing law, shall
likewise be deemed a vessel of domestic ownership so long as there shall not be any
change in the ownership thereof nor any transfer of stock of the companies or
corporations owning such vessel to person not included under the last preceding
paragraph.
Sections 2 and 3 of Act No. 2761 amended sections 1176 and 1202 of the Administrative
Code to read as follows:

SEC. 1176. Investigation into character of vessel. No application for a certificate of

Philippine register shall be approved until the collector of customs is satisfied from an
inspection of the vessel that it is engaged or destined to be engaged in legitimate
trade and that it is of domestic ownership as such ownership is defined in section
eleven hundred and seventy-two of this Code.
The collector of customs may at any time inspect a vessel or examine its owner,
master, crew, or passengers in order to ascertain whether the vessel is engaged in
legitimate trade and is entitled to have or retain the certificate of Philippine register.
SEC. 1202. Limiting number of foreign officers and engineers on board vessels. No
Philippine vessel operating in the coastwise trade or on the high seas shall be
permitted to have on board more than one master or one mate and one engineer
who are not citizens of the United States or of the Philippine Islands, even if they hold
licenses under section one thousand one hundred and ninety-nine hereof. No other
person who is not a citizen of the United States or of the Philippine Islands shall be an
officer or a member of the crew of such vessel. Any such vessel which fails to comply
with the terms of this section shall be required to pay an additional tonnage tax of
fifty centavos per net ton per month during the continuance of said failure.
ISSUES.
Predicated on these facts and provisions of law, the issues as above stated recur, namely,
whether Act No 2761 of the Philippine Legislature is valid in whole or in part whether the
Government of the Philippine Islands, through its Legislature, can deny the registry of vessel
in its coastwise trade to corporations having alien stockholders .
OPINION.
1. Considered from a positive standpoint, there can exist no measure of doubt as to the
power of the Philippine Legislature to enact Act No. 2761. The Act of Congress of April 29,
1908, with its specific delegation of authority to the Government of the Philippine Islands to
regulate the transportation of merchandise and passengers between ports or places therein,
the liberal construction given to the provisions of the Philippine Bill, the Act of Congress of
July 1, 1902, by the courts, and the grant by the Act of Congress of August 29, 1916, of
general legislative power to the Philippine Legislature, are certainly superabundant authority
for such a law. While the Act of the local legislature may in a way be inconsistent with the
Act of Congress regulating the coasting trade of the Continental United States, yet the
general rule that only such laws of the United States have force in the Philippines as are
expressly extended thereto, and the abnegation of power by Congress in favor of the
Philippine Islands would leave no starting point for convincing argument. As a matter of fact,
counsel for petitioner does not assail legislative action from this direction (See U. S. vs. Bull
[1910], 15 Phil., 7; Sinnot vs. Davenport [1859] 22 How., 227.)
2. It is from the negative, prohibitory standpoint that counsel argues against the
constitutionality of Act No. 2761. The first paragraph of the Philippine Bill of Rights of the
Philippine Bill, repeated again in the first paragraph of the Philippine Bill of Rights as set
forth in the Jones Law, provides "That no law shall be enacted in said Islands which shall
deprive any person of life, liberty, or property without due process of law, or deny to any
person therein the equal protection of the laws." Counsel says that Act No. 2761 denies to
Smith, Bell & Co., Ltd., the equal protection of the laws because it, in effect, prohibits the
corporation from owning vessels, and because classification of corporations based on the
citizenship of one or more of their stockholders is capricious, and that Act No. 2761 deprives
the corporation of its properly without due process of law because by the passage of the law

company was automatically deprived of every beneficial attribute of ownership in

the Bato and left with the naked title to a boat it could not use .
The guaranties extended by the Congress of the United States to the Philippine Islands have
been used in the same sense as like provisions found in the United States Constitution.
While the "due process of law and equal protection of the laws" clause of the Philippine Bill
of Rights is couched in slightly different words than the corresponding clause of the
Fourteenth Amendment to the United States Constitution, the first should be interpreted and
given the same force and effect as the latter. (Kepner vs. U.S. [1904], 195 U. S., 100;
Sierra vs. Mortiga [1907], 204 U. S.,.470; U. S. vs. Bull [1910], 15 Phil., 7.) The meaning of
the Fourteenth Amendment has been announced in classic decisions of the United States
Supreme Court. Even at the expense of restating what is so well known, these basic
principles must again be set down in order to serve as the basis of this decision.
The guaranties of the Fourteenth Amendment and so of the first paragraph of the Philippine
Bill of Rights, are universal in their application to all person within the territorial jurisdiction,
without regard to any differences of race, color, or nationality. The word "person" includes
aliens. (Yick Wo vs. Hopkins [1886], 118 U. S., 356; Truax vs. Raich [1915], 239 U. S., 33.)
Private corporations, likewise, are "persons" within the scope of the guaranties in so far as
their property is concerned. (Santa Clara County vs. Southern Pac. R. R. Co. [1886], 118.U.
S., 394; Pembina Mining Co. vs. Pennsylvania [1888],.125 U. S., 181 Covington & L. Turnpike
Road Co. vs. Sandford [1896], 164 U. S., 578.) Classification with the end in view of providing
diversity of treatment may be made among corporations, but must be based upon some
reasonable ground and not be a mere arbitrary selection (Gulf, Colorado & Santa Fe Railway
Co. vs. Ellis [1897],.165 U. S., 150.) Examples of laws held unconstitutional because of
unlawful discrimination against aliens could be cited. Generally, these decisions relate to
statutes which had attempted arbitrarily to forbid aliens to engage in ordinary kinds of
business to earn their living. (State vs.Montgomery [1900], 94 Maine, 192, peddling but
see. Commonwealth vs. Hana [1907], 195 Mass., 262; Templar vs. Board of Examiners of
Barbers [1902], 131 Mich., 254, barbers; Yick Wo vs. Hopkins [1886], 118 U. S.,.356,
discrimination against Chinese; Truax vs. Raich [1915], 239 U. S., 33; In re Parrott [1880], 1
Fed , 481; Fraser vs. McConway & Torley Co. [1897], 82 Fed , 257; Juniata Limestone
Co. vs. Fagley [1898], 187 Penn., 193, all relating to the employment of aliens by private
corporations.)
A literal application of general principles to the facts before us would, of course, cause the
inevitable deduction that Act No. 2761 is unconstitutional by reason of its denial to a
corporation, some of whole members are foreigners, of the equal protection of the laws. Like
all beneficient propositions, deeper research discloses provisos. Examples of a denial of
rights to aliens notwithstanding the provisions of the Fourteenth Amendment could be cited.
(Tragesservs. Gray [1890], 73 Md., 250, licenses to sell spirituous liquors denied to persons
not citizens of the United States; Commonwealth vs. Hana [1907], 195 Mass , 262, excluding
aliens from the right to peddle; Patsone vs.Commonwealth of Pennsylvania [1914], 232 U.
S. , 138, prohibiting the killing of any wild bird or animal by any unnaturalized foreign-born
resident; Ex parte Gilleti [1915], 70 Fla., 442, discriminating in favor of citizens with
reference to the taking for private use of the common property in fish and oysters found in
the public waters of the State; Heim vs. McCall [1915], 239 U. S.,.175, and Crane vs. New
York [1915], 239 U. S., 195, limiting employment on public works by, or for, the State or a
municipality to citizens of the United States.)

One of the exceptions to the general rule, most persistent and far reaching in influence is,
that neither the Fourteenth Amendment to the United States Constitution, broad and
comprehensive as it is, nor any other amendment, "was designed to interfere with the power
of the State, sometimes termed its `police power,' to prescribe regulations to promote the
health, peace, morals, education, and good order of the people, and legislate so as to
increase the industries of the State, develop its resources and add to its wealth and
prosperity. From the very necessities of society, legislation of a special character, having
these objects in view, must often be had in certain districts." (Barbier vs. Connolly [1884],
113 U.S., 27; New Orleans Gas Co. vs. Lousiana Light Co. [1885], 115 U.S., 650.) This is the
same police power which the United States Supreme Court say "extends to so dealing with
the conditions which exist in the state as to bring out of them the greatest welfare in of its
people." (Bacon vs.Walker [1907], 204 U.S., 311.) For quite similar reasons, none of the
provision of the Philippine Organic Law could could have had the effect of denying to the
Government of the Philippine Islands, acting through its Legislature, the right to exercise
that most essential, insistent, and illimitable of powers, the sovereign police power, in the
promotion of the general welfare and the public interest. (U. S. vs. Toribio [1910], 15 Phil.,
85; Churchill and Tait vs.Rafferty [1915], 32 Phil., 580; Rubi vs. Provincial Board of Mindoro
[1919], 39 Phil., 660.) Another notable exception permits of the regulation or distribution of
the public domain or the common property or resources of the people of the State, so that
use may be limited to its citizens. (Ex parte Gilleti [1915], 70 Fla., 442; McCready vs.Virginia
[1876], 94 U. S., 391; Patsone vs. Commonwealth of Pennsylvania [1914], 232U. S., 138.)
Still another exception permits of the limitation of employment in the construction of public
works by, or for, the State or a municipality to citizens of the United States or of the State.
(Atkin vs. Kansas [1903],191 U. S., 207; Heim vs.McCall [1915], 239 U.S., 175;
Crane vs. New York [1915], 239 U. S., 195.) Even as to classification, it is admitted that a
State may classify with reference to the evil to be prevented; the question is a practical one,
dependent upon experience. (Patsone vs. Commonwealth of Pennsylvania [1914], 232 U. S.,
138.)
To justify that portion of Act no. 2761 which permits corporations or companies to obtain a
certificate of Philippine registry only on condition that they be composed wholly of citizens of
the Philippine Islands or of the United States or both, as not infringing Philippine Organic
Law, it must be done under some one of the exceptions here mentioned This must be done,
moreover, having particularly in mind what is so often of controlling effect in this jurisdiction
our local experience and our peculiar local conditions.
To recall a few facts in geography, within the confines of Philippine jurisdictional limits are
found more than three thousand islands. Literally, and absolutely, steamship lines are, for an
Insular territory thus situated, the arteries of commerce. If one be severed, the life-blood of
the nation is lost. If on the other hand these arteries are protected, then the security of the
country and the promotion of the general welfare is sustained. Time and again, with such
conditions confronting it, has the executive branch of the Government of the Philippine
Islands, always later with the sanction of the judicial branch, taken a firm stand with
reference to the presence of undesirable foreigners. The Government has thus assumed to
act for the all-sufficient and primitive reason of the benefit and protection of its own citizens
and of the self-preservation and integrity of its dominion. (In re Patterson [1902], 1 Phil., 93;
Forbes vs.Chuoco, Tiaco and Crossfield [1910], 16 Phil., 534;.228 U.S., 549; In re McCulloch
Dick [1918], 38 Phil., 41.) Boats owned by foreigners, particularly by such solid and
reputable firms as the instant claimant, might indeed traverse the waters of the Philippines
for ages without doing any particular harm. Again, some evilminded foreigner might very

easily take advantage of such lavish hospitality to chart Philippine waters, to obtain valuable
information for unfriendly foreign powers, to stir up insurrection, or to prejudice Filipino or
American commerce. Moreover, under the Spanish portion of Philippine law, the waters
within the domestic jurisdiction are deemed part of the national domain, open to public use.
(Book II, Tit. IV, Ch. I, Civil Code; Spanish Law of Waters of August 3, 1866, arts 1, 2, 3.)
Common carriers which in the Philippines as in the United States and other countries are, as
Lord Hale said, "affected with a public interest," can only be permitted to use these public
waters as a privilege and under such conditions as to the representatives of the people may
seem wise. (See De Villata vs. Stanley [1915], 32 Phil., 541.)
In Patsone vs. Commonwealth of Pennsylvania ([1913], 232 U.S., 138), a case herein before
mentioned, Justice Holmes delivering the opinion of the United States Supreme Court said:
This statute makes it unlawful for any unnaturalized foreign-born resident to kill any
wild bird or animal except in defense of person or property, and `to that end' makes
it unlawful for such foreign-born person to own or be possessed of a shotgun or rifle;
with a penalty of $25 and a forfeiture of the gun or guns. The plaintiff in error was
found guilty and was sentenced to pay the abovementioned fine. The judgment was
affirmed on successive appeals. (231 Pa., 46; 79 Atl., 928.) He brings the case to this
court on the ground that the statute is contrary to the 14th Amendment and also is in
contravention of the treaty between the United States and Italy, to which latter
country the plaintiff in error belongs .
Under the 14th Amendment the objection is twofold; unjustifiably depriving the alien
of property, and discrimination against such aliens as a class. But the former really
depends upon the latter, since it hardly can be disputed that if the lawful object, the
protection of wild life (Geer vs. Connecticut, 161 U.S., 519; 40 L. ed., 793; 16 Sup. Ct.
Rep., 600), warrants the discrimination, the, means adopted for making it effective
also might be adopted. . . .
The discrimination undoubtedly presents a more difficult question. But we start with
reference to the evil to be prevented, and that if the class discriminated against is or
reasonably might be considered to define those from whom the evil mainly is to be
feared, it properly may be picked out. A lack of abstract symmetry does not matter.
The question is a practical one, dependent upon experience. . . .
The question therefore narrows itself to whether this court can say that the
legislature of Pennsylvania was not warranted in assuming as its premise for the law
that resident unnaturalized aliens were the peculiar source of the evil that it desired
to prevent. (Barrett vs. Indiana,. 229 U.S., 26, 29; 57 L. ed., 1050, 1052; 33 Sup. Ct.
Rep., 692.)
Obviously the question, so stated, is one of local experience, on which this court
ought to be very slow to declare that the state legislature was wrong in its facts
(Adams vs. Milwaukee, 228 U.S., 572, 583; 57 L. ed., 971,.977; 33 Sup. Ct. Rep., 610.)
If we might trust popular speech in some states it was right; but it is enough that this
court has no such knowledge of local conditions as to be able to say that it was
manifestly wrong. . . .
Judgment affirmed.
We are inclined to the view that while Smith, Bell & Co. Ltd., a corporation having alien
stockholders, is entitled to the protection afforded by the due-process of law and equal
protection of the laws clause of the Philippine Bill of Rights, nevertheless, Act No. 2761 of
the Philippine Legislature, in denying to corporations such as Smith, Bell &. Co. Ltd., the right

to register vessels in the Philippines coastwise trade, does not belong to that vicious species
of class legislation which must always be condemned, but does fall within authorized
exceptions, notably, within the purview of the police power, and so does not offend against
the constitutional provision.
This opinion might well be brought to a close at this point. It occurs to us, however, that the
legislative history of the United States and the Philippine Islands, and, probably, the
legislative history of other countries, if we were to take the time to search it out, might
disclose similar attempts at restriction on the right to enter the coastwise trade, and might
thus furnish valuable aid by which to ascertain and, if possible, effectuate legislative
intention.
3. The power to regulate commerce, expressly delegated to the Congress by the
Constitution, includes the power to nationalize ships built and owned in the United
States by registries and enrollments, and the recording of the muniments of title of
American vessels. The Congress "may encourage or it may entirely prohibit such
commerce, and it may regulate in any way it may see fit between these two
extremes." (U.S.vs. Craig [1886], 28 Fed., 795; Gibbons vs. Ogden [1824], 9 Wheat.,
1; The Passenger Cases [1849], 7 How., 283.)
Acting within the purview of such power, the first Congress of the United States had not
been long convened before it enacted on September 1, 1789, "An Act for Registering and
Clearing Vessels, Regulating the Coasting Trade, and for other purposes." Section 1 of this
law provided that for any ship or vessel to obtain the benefits of American registry, it must
belong wholly to a citizen or citizens of the United States "and no other." (1 Stat. at L., 55.)
That Act was shortly after repealed, but the same idea was carried into the Acts of Congress
of December 31, 1792 and February 18, 1793. (1 Stat. at L., 287, 305.).Section 4 of the Act
of 1792 provided that in order to obtain the registry of any vessel, an oath shall be taken
and subscribed by the owner, or by one of the owners thereof, before the officer authorized
to make such registry, declaring, "that there is no subject or citizen of any foreign prince or
state, directly or indirectly, by way of trust, confidence, or otherwise, interested in such
vessel, or in the profits or issues thereof." Section 32 of the Act of 1793 even went so far as
to say "that if any licensed ship or vessel shall be transferred to any person who is not at the
time of such transfer a citizen of and resident within the United States, ... every such vessel
with her tackle, apparel, and furniture, and the cargo found on board her, shall be
forefeited." In case of alienation to a foreigner, Chief Justice Marshall said that all the
privileges of an American bottom were ipso facto forfeited. (U.S. vs. Willings and Francis
[1807], 4 Cranch, 48.) Even as late as 1873, the Attorney-General of the United States was
of the opinion that under the provisions of the Act of December 31, 1792, no vessel in which
a foreigner is directly or indirectly interested can lawfully be registered as a vessel of the
United. States. (14 Op. Atty.-Gen. [U.S.], 340.)
These laws continued in force without contest, although possibly the Act of March 3, 1825,
may have affected them, until amended by the Act of May 28, 1896 (29 Stat. at L., 188)
which extended the privileges of registry from vessels wholly owned by a citizen or citizens
of the United States to corporations created under the laws of any of the states thereof. The
law, as amended, made possible the deduction that a vessel belonging to a domestic
corporation was entitled to registry or enrollment even though some stock of the company
be owned by aliens. The right of ownership of stock in a corporation was thereafter distinct
from the right to hold the property by the corporation (Humphreys vs. McKissock [1890], 140
U.S., 304; Queen vs. Arnaud [1846], 9 Q. B., 806; 29 Op. Atty.-Gen. [U.S.],188.)

On American occupation of the Philippines, the new government found a substantive law in
operation in the Islands with a civil law history which it wisely continued in force Article
fifteen of the Spanish Code of Commerce permitted any foreigner to engage in Philippine
trade if he had legal capacity to do so under the laws of his nation. When the Philippine
Commission came to enact the Customs Administrative Act (No. 355) in 1902, it returned to
the old American policy of limiting the protection and flag of the United States to vessels
owned by citizens of the United States or by native inhabitants of the Philippine Islands (Sec.
117.) Two years later, the same body reverted to the existing Congressional law by
permitting certification to be issued to a citizen of the United States or to a corporation or
company created under the laws of the United States or of any state thereof or of the
Philippine Islands (Act No. 1235, sec. 3.) The two administration codes repeated the same
provisions with the necessary amplification of inclusion of citizens or native inhabitants of
the Philippine Islands (Adm. Code of 1916, sec. 1345; Adm. Code of 1917, sec. 1172). And
now Act No. 2761 has returned to the restrictive idea of the original Customs Administrative
Act which in turn was merely a reflection of the statutory language of the first American
Congress.
Provisions such as those in Act No. 2761, which deny to foreigners the right to a certificate of
Philippine registry, are thus found not to be as radical as a first reading would make them
appear.
Without any subterfuge, the apparent purpose of the Philippine Legislature is seen to be to
enact an anti-alien shipping act. The ultimate purpose of the Legislature is to encourage
Philippine ship-building. This, without doubt, has, likewise, been the intention of the United
States Congress in passing navigation or tariff laws on different occasions. The object of
such a law, the United States Supreme Court once said, was to encourage American trade,
navigation, and ship-building by giving American ship-owners exclusive privileges. (Old
Dominion Steamship Co. vs. Virginia [1905], 198 U.S., 299; Kent's Commentaries, Vol. 3, p.
139.)
In the concurring opinion of Justice Johnson in Gibbons vs. Ogden ([1824], 9 Wheat., 1) is
found the following:
Licensing acts, in fact, in legislation, are universally restraining acts; as, for example,
acts licensing gaming houses, retailers of spirituous liquors, etc. The act, in this
instance, is distinctly of that character, and forms part of an extensive system, the
object of which is to encourage American shipping, and place them on an equal
footing with the shipping of other nations. Almost every commercial nation reserves
to its own subjects a monopoly of its coasting trade; and a countervailing privilege in
favor of American shipping is contemplated, in the whole legislation of the United
States on this subject. It is not to give the vessel an American character, that the
license is granted; that effect has been correctly attributed to the act of her
enrollment. But it is to confer on her American privileges, as contradistinguished from
foreign; and to preserve the. Government from fraud by foreigners, in surreptitiously
intruding themselves into the American commercial marine, as well as frauds upon
the revenue in the trade coastwise, that this whole system is projected.
The United States Congress in assuming its grave responsibility of legislating wisely for a
new country did so imbued with a spirit of Americanism. Domestic navigation and trade, it
decreed, could only be carried on by citizens of the United States. If the representatives of
the American people acted in this patriotic manner to advance the national policy, and if
their action was accepted without protest in the courts, who can say that they did not enact

such beneficial laws under the all-pervading police power, with the prime motive of
safeguarding the country and of promoting its prosperity? Quite similarly, the Philippine
Legislature made up entirely of Filipinos, representing the mandate of the Filipino people and
the guardian of their rights, acting under practically autonomous powers, and imbued with a
strong sense of Philippinism, has desired for these Islands safety from foreign interlopers,
the use of the common property exclusively by its citizens and the citizens of the United
States, and protection for the common good of the people. Who can say, therefore,
especially can a court, that with all the facts and circumstances affecting the Filipino people
before it, the Philippine Legislature has erred in the enactment of Act No. 2761?
Surely, the members of the judiciary are not expected to live apart from active life, in
monastic seclusion amidst dusty tomes and ancient records, but, as keen spectators of
passing events and alive to the dictates of the general the national welfare, can incline
the scales of their decisions in favor of that solution which will most effectively promote the
public policy. All the presumption is in favor of the constitutionally of the law and without
good and strong reasons, courts should not attempt to nullify the action of the Legislature.
"In construing a statute enacted by the Philippine Commission (Legislature), we deem it our
duty not to give it a construction which would be repugnant to an Act of Congress, if the
language of the statute is fairly susceptible of another construction not in conflict with the
higher law." (In re Guaria [1913], 24. Phil., 36; U.S. vs. Ten Yu [1912], 24 Phil., 1.) That is
the true construction which will best carry legislative intention into effect.
With full consciousness of the importance of the question, we nevertheless are clearly of the
opinion that the limitation of domestic ownership for purposes of obtaining a certificate of
Philippine registry in the coastwise trade to citizens of the Philippine Islands, and to citizens
of the United States, does not violate the provisions of paragraph 1 of section 3 of the Act of
Congress of August 29, 1916 No treaty right relied upon Act No. 2761 of the Philippine
Legislature is held valid and constitutional .
The petition for a writ of mandamus is denied, with costs against the petitioner. So ordered.
Arellano, C.J., Torres, Johnson, Araullo, Street, Avancea and Moir, JJ., concur.

G.R. No. L-19550

June 19, 1967

HARRY S. STONEHILL, ROBERT P. BROOKS, JOHN J. BROOKS and KARL

BECK, petitioners,
vs.
HON. JOSE W. DIOKNO, in his capacity as SECRETARY OF JUSTICE; JOSE LUKBAN, in
his capacity as Acting Director, National Bureau of Investigation; SPECIAL
PROSECUTORS PEDRO D. CENZON, EFREN I. PLANA and MANUEL VILLAREAL, JR.
and ASST. FISCAL MANASES G. REYES; JUDGE AMADO ROAN, Municipal Court of
Manila; JUDGE ROMAN CANSINO, Municipal Court of Manila; JUDGE HERMOGENES
CALUAG, Court of First Instance of Rizal-Quezon City Branch, and JUDGE DAMIAN
JIMENEZ, Municipal Court of Quezon City, respondents.
Paredes, Poblador, Cruz and Nazareno and Meer, Meer and Meer and Juan T. David for
petitioners.
Office of the Solicitor General Arturo A. Alafriz, Assistant Solicitor General Pacifico P. de
Castro, Assistant Solicitor General Frine C. Zaballero, Solicitor Camilo D. Quiason and
Solicitor C. Padua for respondents.
CONCEPCION, C.J.:
Upon application of the officers of the government named on the margin 1 hereinafter
referred to as Respondents-Prosecutors several judges2 hereinafter referred to as
Respondents-Judges issued, on different dates,3 a total of 42 search warrants against
petitioners herein4 and/or the corporations of which they were officers,5 directed to the any
peace officer, to search the persons above-named and/or the premises of their offices,
warehouses and/or residences, and to seize and take possession of the following personal
property to wit:
Books of accounts, financial records, vouchers, correspondence, receipts, ledgers,
journals, portfolios, credit journals, typewriters, and other documents and/or papers
showing all business transactions including disbursements receipts, balance sheets
and profit and loss statements and Bobbins (cigarette wrappers).
as "the subject of the offense; stolen or embezzled and proceeds or fruits of the offense," or
"used or intended to be used as the means of committing the offense," which is described in
the applications adverted to above as "violation of Central Bank Laws, Tariff and Customs
Laws, Internal Revenue (Code) and the Revised Penal Code."
Alleging that the aforementioned search warrants are null and void, as contravening the
Constitution and the Rules of Court because, inter alia: (1) they do not describe with
particularity the documents, books and things to be seized; (2) cash money, not mentioned
in the warrants, were actually seized; (3) the warrants were issued to fish evidence against
the aforementioned petitioners in deportation cases filed against them; (4) the searches and
seizures were made in an illegal manner; and (5) the documents, papers and cash money
seized were not delivered to the courts that issued the warrants, to be disposed of in
accordance with law on March 20, 1962, said petitioners filed with the Supreme Court this
original action for certiorari, prohibition, mandamus and injunction, and prayed that, pending
final disposition of the present case, a writ of preliminary injunction be issued restraining
Respondents-Prosecutors, their agents and /or representatives from using the effects seized
as aforementioned or any copies thereof, in the deportation cases already adverted to, and
that, in due course, thereafter, decision be rendered quashing the contested search warrants
and declaring the same null and void, and commanding the respondents, their agents or
representatives to return to petitioners herein, in accordance with Section 3, Rule 67, of the

Rules of Court, the documents, papers, things and cash moneys seized or confiscated under
the search warrants in question.
In their answer, respondents-prosecutors alleged, 6 (1) that the contested search warrants
are valid and have been issued in accordance with law; (2) that the defects of said warrants,
if any, were cured by petitioners' consent; and (3) that, in any event, the effects seized are
admissible in evidence against herein petitioners, regardless of the alleged illegality of the
aforementioned searches and seizures.
On March 22, 1962, this Court issued the writ of preliminary injunction prayed for in the
petition. However, by resolution dated June 29, 1962, the writ was partially lifted or
dissolved, insofar as the papers, documents and things seized from the offices of the
corporations above mentioned are concerned; but, the injunction was maintained as regards
the papers, documents and things found and seized in the residences of petitioners herein. 7
Thus, the documents, papers, and things seized under the alleged authority of the warrants
in question may be split into two (2) major groups, namely: (a) those found and seized in the
offices of the aforementioned corporations, and (b) those found and seized in the residences
of petitioners herein.
As regards the first group, we hold that petitioners herein have no cause of action to assail
the legality of the contested warrants and of the seizures made in pursuance thereof, for the
simple reason that said corporations have their respective personalities, separate and
distinct from the personality of herein petitioners, regardless of the amount of shares of
stock or of the interest of each of them in said corporations, and whatever the offices they
hold therein may be.8 Indeed, it is well settled that the legality of a seizure can be
contested only by the party whose rights have been impaired thereby,9 and that the
objection to an unlawful search and seizure is purely personal and cannot be availed of by
third parties. 10 Consequently, petitioners herein may not validly object to the use in
evidence against them of the documents, papers and things seized from the offices and
premises of the corporations adverted to above, since the right to object to the admission of
said papers in evidence belongsexclusively to the corporations, to whom the seized effects
belong, and may not be invoked by the corporate officers in proceedings against them in
their individual capacity. 11 Indeed, it has been held:
. . . that the Government's action in gaining possession of papers belonging to
the corporation did not relate to nor did it affect the personal defendants. If these
papers were unlawfully seized and thereby the constitutional rights of or any one
were invaded, they were the rights of the corporation and not the rights of the other
defendants. Next, it is clear that a question of the lawfulness of a seizure can be
raised only by one whose rights have been invaded. Certainly, such a seizure, if
unlawful, could not affect the constitutional rights of defendants whose property had
not been seized or the privacy of whose homes had not been disturbed; nor could
they claim for themselves the benefits of the Fourth Amendment, when its violation,
if any, was with reference to the rights of another. Remus vs. United
States (C.C.A.)291 F. 501, 511. It follows, therefore, that the question of the
admissibility of the evidence based on an alleged unlawful search and seizure
does not extend to the personal defendants but
embraces only the corporation whose property was taken. . . . (A Guckenheimer &
Bros. Co. vs. United States, [1925] 3 F. 2d. 786, 789, Emphasis supplied.)
With respect to the documents, papers and things seized in the residences of petitioners
herein, the aforementioned resolution of June 29, 1962, lifted the writ of preliminary

injunction previously issued by this Court, 12 thereby, in effect, restraining herein

Respondents-Prosecutors from using them in evidence against petitioners herein.
In connection with said documents, papers and things, two (2) important questions need be
settled, namely: (1) whether the search warrants in question, and the searches and seizures
made under the authority thereof, are valid or not, and (2) if the answer to the preceding
question is in the negative, whether said documents, papers and things may be used in
evidence against petitioners herein.1wph1.t
Petitioners maintain that the aforementioned search warrants are in the nature of general
warrants and that accordingly, the seizures effected upon the authority there of are null and
void. In this connection, the Constitution13 provides:
The right of the people to be secure in their persons, houses, papers, and effects
against unreasonable searches and seizures shall not be violated, and no warrants
shall issue but upon probable cause, to be determined by the judge after examination
under oath or affirmation of the complainant and the witnesses he may produce, and
particularly describing the place to be searched, and the persons or things to be
seized.
Two points must be stressed in connection with this constitutional mandate, namely: (1) that
no warrant shall issue but upon probable cause, to be determined by the judge in the
manner set forth in said provision; and (2) that the warrant shall particularly describe the
things to be seized.
None of these requirements has been complied with in the contested warrants. Indeed, the
same were issued upon applications stating that the natural and juridical person therein
named had committed a "violation of Central Ban Laws, Tariff and Customs Laws, Internal
Revenue (Code) and Revised Penal Code." In other words, nospecific offense had been
alleged in said applications. The averments thereof with respect to the offense committed
were abstract. As a consequence, it was impossible for the judges who issued the warrants
to have found the existence of probable cause, for the same presupposes the introduction of
competent proof that the party against whom it is sought has performed particular acts, or
committed specific omissions, violating a given provision of our criminal laws. As a matter of
fact, the applications involved in this case do not allege any specific acts performed by
herein petitioners. It would be the legal heresy, of the highest order, to convict anybody of a
"violation of Central Bank Laws, Tariff and Customs Laws, Internal Revenue (Code) and
Revised Penal Code," as alleged in the aforementioned applications without reference
to any determinate provision of said laws or
To uphold the validity of the warrants in question would be to wipe out completely one of the
most fundamental rights guaranteed in our Constitution, for it would place the sanctity of
the domicile and the privacy of communication and correspondence at the mercy of the
whims caprice or passion of peace officers. This is precisely the evil sought to be remedied
by the constitutional provision above quoted to outlaw the so-called general warrants. It is
not difficult to imagine what would happen, in times of keen political strife, when the party in
power feels that the minority is likely to wrest it, even though by legal means.
Such is the seriousness of the irregularities committed in connection with the disputed
search warrants, that this Court deemed it fit to amend Section 3 of Rule 122 of the former
Rules of Court 14 by providing in its counterpart, under the Revised Rules of Court 15 that "a
search warrant shall not issue but upon probable cause in connection with one specific
offense." Not satisfied with this qualification, the Court added thereto a paragraph, directing
that "no search warrant shall issue for more than one specific offense."

The grave violation of the Constitution made in the application for the contested search
warrants was compounded by the description therein made of the effects to be searched for
and seized, to wit:
Books of accounts, financial records, vouchers, journals, correspondence, receipts,
ledgers, portfolios, credit journals, typewriters, and other documents and/or papers
showing all business transactions including disbursement receipts, balance sheets
and related profit and loss statements.
Thus, the warrants authorized the search for and seizure of records pertaining to all business
transactions of petitioners herein, regardless of whether the transactions
were legal or illegal. The warrants sanctioned the seizure of all records of the petitioners and
the aforementioned corporations, whatever their nature, thus openly contravening the
explicit command of our Bill of Rights that the things to be seized
be particularly described as well as tending to defeat its major objective: the elimination
of general warrants.
Relying upon Moncado vs. People's Court (80 Phil. 1), Respondents-Prosecutors maintain
that, even if the searches and seizures under consideration were unconstitutional, the
documents, papers and things thus seized are admissible in evidence against petitioners
herein. Upon mature deliberation, however, we are unanimously of the opinion that the
position taken in the Moncado case must be abandoned. Said position was in line with the
American common law rule, that the criminal should not be allowed to go free merely
"because the constable has blundered," 16 upon the theory that the constitutional prohibition
against unreasonable searches and seizures is protected by means other than the exclusion
of evidence unlawfully obtained, 17 such as the common-law action for damages against the
searching officer, against the party who procured the issuance of the search warrant and
against those assisting in the execution of an illegal search, their criminal punishment,
resistance, without liability to an unlawful seizure, and such other legal remedies as may be
provided by other laws.
However, most common law jurisdictions have already given up this approach and
eventually adopted the exclusionary rule, realizing that this is the only practical means of
enforcing the constitutional injunction against unreasonable searches and seizures. In the
language of Judge Learned Hand:
As we understand it, the reason for the exclusion of evidence competent as such,
which has been unlawfully acquired, is that exclusion is the only practical way of
enforcing the constitutional privilege. In earlier times the action of trespass against
the offending official may have been protection enough; but that is true no longer.
Only in case the prosecution which itself controls the seizing officials, knows that it
cannot profit by their wrong will that wrong be repressed.18
In fact, over thirty (30) years before, the Federal Supreme Court had already declared:
If letters and private documents can thus be seized and held and used in evidence
against a citizen accused of an offense, the protection of the 4th Amendment,
declaring his rights to be secure against such searches and seizures, is of no value,
and, so far as those thus placed are concerned, might as well be stricken from the
Constitution. The efforts of the courts and their officials to bring the guilty to
punishment, praiseworthy as they are, are not to be aided by the sacrifice of those
great principles established by years of endeavor and suffering which have resulted
in their embodiment in the fundamental law of the land.19

This view was, not only reiterated, but, also, broadened in subsequent decisions on the same
Federal Court. 20After reviewing previous decisions thereon, said Court held, in Mapp vs.
Ohio (supra.):
. . . Today we once again examine the Wolf's constitutional documentation of the right
of privacy free from unreasonable state intrusion, and after its dozen years on our
books, are led by it to close the only courtroom door remaining open to evidence
secured by official lawlessness in flagrant abuse of that basic right, reserved to all
persons as a specific guarantee against that very same unlawful conduct. We hold
that all evidence obtained by searches and seizures in violation of the Constitution is,
by that same authority, inadmissible in a State.
Since the Fourth Amendment's right of privacy has been declared enforceable against
the States through the Due Process Clause of the Fourteenth, it is enforceable against
them by the same sanction of exclusion as it used against the Federal Government.
Were it otherwise, then just as without the Weeks rule the assurance against
unreasonable federal searches and seizures would be "a form of words," valueless
and underserving of mention in a perpetual charter of inestimable human liberties, so
too, without that rule the freedom from state invasions of privacy would be so
ephemeral and so neatly severed from its conceptual nexus with the freedom from
all brutish means of coercing evidence as not to permit this Court's high regard as a
freedom "implicit in the concept of ordered liberty." At the time that the Court held in
Wolf that the amendment was applicable to the States through the Due Process
Clause, the cases of this Court as we have seen, had steadfastly held that as to
federal officers the Fourth Amendment included the exclusion of the evidence seized
in violation of its provisions. Even Wolf "stoutly adhered" to that proposition. The right
to when conceded operatively enforceable against the States, was not susceptible of
destruction by avulsion of the sanction upon which its protection and enjoyment had
always been deemed dependent under the Boyd, Weeks and Silverthorne Cases.
Therefore, in extending the substantive protections of due process to all
constitutionally unreasonable searches state or federal it was logically and
constitutionally necessarily that the exclusion doctrine an essential part of the
right to privacy be also insisted upon as an essential ingredient of the right newly
recognized by the Wolf Case. In short, the admission of the new constitutional Right
by Wolf could not tolerate denial of its most important constitutional privilege,
namely, the exclusion of the evidence which an accused had been forced to give by
reason of the unlawful seizure. To hold otherwise is to grant the right but in reality to
withhold its privilege and enjoyment. Only last year the Court itself recognized
that the purpose of the exclusionary rule to "is to deter to compel respect for the
constitutional guaranty in the only effectively available way by removing the
incentive to disregard it" . . . .
The ignoble shortcut to conviction left open to the State tends to destroy the entire
system of constitutional restraints on which the liberties of the people rest. Having
once recognized that the right to privacy embodied in the Fourth Amendment is
enforceable against the States, and that the right to be secure against rude invasions
of privacy by state officers is, therefore constitutional in origin, we can no longer
permit that right to remain an empty promise. Because it is enforceable in the same
manner and to like effect as other basic rights secured by its Due Process Clause, we
can no longer permit it to be revocable at the whim of any police officer who, in the
name of law enforcement itself, chooses to suspend its enjoyment. Our decision,

founded on reason and truth, gives to the individual no more than that which the
Constitution guarantees him to the police officer no less than that to which honest
law enforcement is entitled, and, to the courts, that judicial integrity so necessary in
the true administration of justice. (emphasis ours.)
Indeed, the non-exclusionary rule is contrary, not only to the letter, but also, to the spirit of
the constitutional injunction against unreasonable searches and seizures. To be sure, if the
applicant for a search warrant has competent evidence to establish probable cause of the
commission of a given crime by the party against whom the warrant is intended, then there
is no reason why the applicant should not comply with the requirements of the fundamental
law. Upon the other hand, if he has no such competent evidence, then it is not possible for
the Judge to find that there is probable cause, and, hence, no justification for the issuance of
the warrant. The only possible explanation (not justification) for its issuance is the necessity
of fishing evidence of the commission of a crime. But, then, this fishing expedition is
indicative of the absence of evidence to establish a probable cause.
Moreover, the theory that the criminal prosecution of those who secure an illegal search
warrant and/or make unreasonable searches or seizures would suffice to protect the
constitutional guarantee under consideration, overlooks the fact that violations thereof are,
in general, committed By agents of the party in power, for, certainly, those belonging to the
minority could not possibly abuse a power they do not have. Regardless of the handicap
under which the minority usually but, understandably finds itself in prosecuting agents
of the majority, one must not lose sight of the fact that the psychological and moral effect of
the possibility 21 of securing their conviction, is watered down by the pardoning power of the
party for whose benefit the illegality had been committed.
In their Motion for Reconsideration and Amendment of the Resolution of this Court dated
June 29, 1962, petitioners allege that Rooms Nos. 81 and 91 of Carmen Apartments, House
No. 2008, Dewey Boulevard, House No. 1436, Colorado Street, and Room No. 304 of the
Army-Navy Club, should be included among the premises considered in said Resolution as
residences of herein petitioners, Harry S. Stonehill, Robert P. Brook, John J. Brooks and Karl
Beck, respectively, and that, furthermore, the records, papers and other effects seized in the
offices of the corporations above referred to include personal belongings of said petitioners
and other effects under their exclusive possession and control, for the exclusion of which
they have a standing under the latest rulings of the federal courts of federal courts of the
United States. 22
We note, however, that petitioners' theory, regarding their alleged possession of and control
over the aforementioned records, papers and effects, and the alleged "personal" nature
thereof, has Been Advanced, notin their petition or amended petition herein, but in the
Motion for Reconsideration and Amendment of the Resolution of June 29, 1962. In other
words, said theory would appear to be readjustment of that followed in said petitions, to suit
the approach intimated in the Resolution sought to be reconsidered and amended. Then,
too, some of the affidavits or copies of alleged affidavits attached to said motion for
reconsideration, or submitted in support thereof, contain either inconsistent allegations, or
allegations inconsistent with the theory now advanced by petitioners herein.
Upon the other hand, we are not satisfied that the allegations of said petitions said motion
for reconsideration, and the contents of the aforementioned affidavits and other papers
submitted in support of said motion, have sufficiently established the facts or conditions
contemplated in the cases relied upon by the petitioners; to warrant application of the views
therein expressed, should we agree thereto. At any rate, we do not deem it necessary to

express our opinion thereon, it being best to leave the matter open for determination in
appropriate cases in the future.
We hold, therefore, that the doctrine adopted in the Moncado case must be, as it is hereby,
abandoned; that the warrants for the search of three (3) residences of herein petitioners, as
specified in the Resolution of June 29, 1962, are null and void; that the searches and
seizures therein made are illegal; that the writ of preliminary injunction heretofore issued, in
connection with the documents, papers and other effects thus seized in said residences of
herein petitioners is hereby made permanent; that the writs prayed for are granted, insofar
as the documents, papers and other effects so seized in the aforementioned residences are
concerned; that the aforementioned motion for Reconsideration and Amendment should be,
as it is hereby, denied; and that the petition herein is dismissed and the writs prayed for
denied, as regards the documents, papers and other effects seized in the twenty-nine (29)
places, offices and other premises enumerated in the same Resolution, without special
pronouncement as to costs.
It is so ordered.
Reyes, J.B.L., Dizon, Makalintal, Bengzon, J.P., Zaldivar and Sanchez, JJ., concur.
CASTRO, J., concurring and dissenting:
From my analysis of the opinion written by Chief Justice Roberto Concepcion and from the
import of the deliberations of the Court on this case, I gather the following distinct
conclusions:
1. All the search warrants served by the National Bureau of Investigation in this case
are general warrants and are therefore proscribed by, and in violation of, paragraph 3
of section 1 of Article III (Bill of Rights) of the Constitution;
2. All the searches and seizures conducted under the authority of the said search
warrants were consequently illegal;
3. The non-exclusionary rule enunciated in Moncado vs. People, 80 Phil. 1, should be,
and is declared, abandoned;
4. The search warrants served at the three residences of the petitioners
are expressly declared null and void the searches and seizures therein made
are expressly declared illegal; and the writ of preliminary injunction heretofore issued
against the use of the documents, papers and effect seized in the said residences is
made permanent; and
5. Reasoning that the petitioners have not in their pleadings satisfactorily
demonstrated that they have legal standing to move for the suppression of the
documents, papers and effects seized in the places other than the three residences
adverted to above, the opinion written by the Chief
Justice refrains from expresslydeclaring as null and void the such warrants served at
such other places and as illegal the searches and seizures made therein, and leaves
"the matter open for determination in appropriate cases in the future."
It is precisely the position taken by the Chief Justice summarized in the immediately
preceding paragraph (numbered 5) with which I am not in accord.
I do not share his reluctance or unwillingness to expressly declare, at this time, the nullity of
the search warrants served at places other than the three residences, and the illegibility of
the searches and seizures conducted under the authority thereof. In my view even the
exacerbating passions and prejudices inordinately generated by the environmental political
and moral developments of this case should not deter this Court from forthrightly laying

down the law not only for this case but as well for future cases and future
generations. All the search warrants, without exception, in this case are admittedly general,
blanket and roving warrants and are therefore admittedly and indisputably outlawed by the
Constitution; and the searches and seizures made were therefore unlawful. That the
petitioners, let us assume in gratia argumente, have no legal standing to ask for the
suppression of the papers, things and effects seized from places other than their residences,
to my mind, cannot in any manner affect, alter or otherwise modify the intrinsic nullity of the
search warrants and the intrinsic illegality of the searches and seizures made thereunder.
Whether or not the petitioners possess legal standing the said warrants are void and remain
void, and the searches and seizures were illegal and remain illegal. No inference can be
drawn from the words of the Constitution that "legal standing" or the lack of it is a
determinant of the nullity or validity of a search warrant or of the lawfulness or illegality of a
search or seizure.
On the question of legal standing, I am of the conviction that, upon the pleadings submitted
to this Court the petitioners have the requisite legal standing to move for the suppression
and return of the documents, papers and effects that were seized from places other than
their family residences.
Our constitutional provision on searches and seizures was derived almost verbatim from the
Fourth Amendment to the United States Constitution. In the many years of judicial
construction and interpretation of the said constitutional provision, our courts have
invariably regarded as doctrinal the pronouncement made on the Fourth Amendment by
federal courts, especially the Federal Supreme Court and the Federal Circuit Courts of
Appeals.
The U.S. doctrines and pertinent cases on standing to move for the suppression or return of
documents, papers and effects which are the fruits of an unlawful search and seizure, may
be summarized as follows; (a) ownership of documents, papers and effects gives "standing;"
(b) ownership and/or control or possession actual or constructive of premises searched
gives "standing"; and (c) the "aggrieved person" doctrine where the search warrant and the
sworn application for search warrant are "primarily" directed solely and exclusively against
the "aggrieved person," gives "standing."
An examination of the search warrants in this case will readily show that, excepting three, all
were directed against the petitioners personally. In some of them, the petitioners were
named personally, followed by the designation, "the President and/or General Manager" of
the particular corporation. The three warrants excepted named three corporate defendants.
But the "office/house/warehouse/premises" mentioned in the said three warrants were also
the same "office/house/warehouse/premises" declared to be owned by or under the control
of the petitioners in all the other search warrants directed against the petitioners and/or "the
President and/or General Manager" of the particular corporation. (see pages 5-24 of
Petitioners' Reply of April 2, 1962). The searches and seizures were to be made, and were
actually made, in the "office/house/warehouse/premises" owned by or under the control of
the petitioners.
Ownership of matters seized gives "standing."
Ownership of the properties seized alone entitles the petitioners to bring a motion to return
and suppress, and gives them standing as persons aggrieved by an unlawful search and
seizure regardless of their location at the time of seizure. Jones vs. United States, 362 U.S.
257, 261 (1960) (narcotics stored in the apartment of a friend of the defendant); Henzel vs.
United States, 296 F. 2d. 650, 652-53 (5th Cir. 1961), (personal and corporate papers of

corporation of which the defendant was president), United States vs. Jeffers, 342 U.S. 48
(1951) (narcotics seized in an apartment not belonging to the defendant); Pielow vs. United
States, 8 F. 2d 492, 493 (9th Cir. 1925) (books seized from the defendant's sister but
belonging to the defendant); Cf. Villano vs. United States, 310 F. 2d 680, 683 (10th Cir. 1962)
(papers seized in desk neither owned by nor in exclusive possession of the defendant).
In a very recent case (decided by the U.S. Supreme Court on December 12, 1966), it was
held that under the constitutional provision against unlawful searches and seizures, a person
places himself or his property within a constitutionally protected area, be it his home or his
office, his hotel room or his automobile:
Where the argument falls is in its misapprehension of the fundamental nature and
scope of Fourth Amendment protection. What the Fourth Amendment protects is the
security a man relies upon when heplaces himself or his property within a
constitutionally protected area, be it his home or his office, his hotel room or his
automobile. There he is protected from unwarranted governmental intrusion. And
when he puts some thing in his filing cabinet, in his desk drawer, or in his pocket, he
has the right to know it will be secure from an unreasonable search or an
unreasonable seizure. So it was that the Fourth Amendment could not tolerate the
warrantless search of the hotel room in Jeffers, the purloining of the petitioner's
private papers inGouled, or the surreptitious electronic surveilance in Silverman.
Countless other cases which have come to this Court over the years have involved a
myriad of differing factual contexts in which the protections of the Fourth
Amendment have been appropriately invoked. No doubt, the future will bring
countless others. By nothing we say here do we either foresee or foreclose factual
situations to which the Fourth Amendment may be applicable. (Hoffa vs. U.S., 87 S.
Ct. 408 (December 12, 1966). See also U.S. vs. Jeffers, 342 U.S. 48, 72 S. Ct. 93
(November 13, 1951). (Emphasis supplied).
Control of premises searched gives "standing."
Independent of ownership or other personal interest in the records and documents seized,
the petitioners have standing to move for return and suppression by virtue of their
proprietary or leasehold interest in many of the premises searched. These proprietary and
leasehold interests have been sufficiently set forth in their motion for reconsideration and
need not be recounted here, except to emphasize that the petitioners paid rent, directly or
indirectly, for practically all the premises searched (Room 91, 84 Carmen Apts; Room 304,
Army & Navy Club; Premises 2008, Dewey Boulevard; 1436 Colorado Street); maintained
personal offices within the corporate offices (IBMC, USTC); had made improvements or
furnished such offices; or had paid for the filing cabinets in which the papers were stored
(Room 204, Army & Navy Club); and individually, or through their respective spouses, owned
the controlling stock of the corporations involved. The petitioners' proprietary interest in
most, if not all, of the premises searched therefore independently gives them standing to
move for the return and suppression of the books, papers and affects seized therefrom.
In Jones vs. United States, supra, the U.S. Supreme Court delineated the nature and extent
of the interest in the searched premises necessary to maintain a motion to suppress. After
reviewing what it considered to be the unduly technical standard of the then prevailing
circuit court decisions, the Supreme Court said (362 U.S. 266):
We do not lightly depart from this course of decisions by the lower courts. We are
persuaded, however, that it is unnecessarily and ill-advised to import into the law
surrounding the constitutional right to be free from unreasonable searches and

seizures subtle distinctions, developed and refined by the common law in evolving
the body of private property law which, more than almost any other branch of law,
has been shaped by distinctions whose validity is largely historical. Even in the area
from which they derive, due consideration has led to the discarding of those
distinctions in the homeland of the common law. See Occupiers' Liability Act, 1957, 5
and 6 Eliz. 2, c. 31, carrying out Law Reform Committee, Third Report, Cmd. 9305.
Distinctions such as those between "lessee", "licensee," "invitee," "guest," often only
of gossamer strength, ought not be determinative in fashioning procedures ultimately
referable to constitutional safeguards. See also Chapman vs. United States, 354 U.S.
610, 616-17 (1961).
It has never been held that a person with requisite interest in the premises searched must
own the property seized in order to have standing in a motion to return and suppress.
In Alioto vs. United States, 216 F. Supp. 48 (1963), a Bookkeeper for several corporations
from whose apartment the corporate records were seized successfully moved for their
return. In United States vs. Antonelli, Fireworks Co., 53 F. Supp. 870, 873 (W D. N. Y. 1943),
the corporation's president successfully moved for the return and suppression is to him of
both personal and corporate documents seized from his home during the course of an illegal
search:
The lawful possession by Antonelli of documents and property, "either his own or the
corporation's was entitled to protection against unreasonable search and seizure.
Under the circumstances in the case at bar, the search and seizure were
unreasonable and unlawful. The motion for the return of seized article and the
suppression of the evidence so obtained should be granted. (Emphasis supplied).
Time was when only a person who had property in interest in either the place searched or
the articles seize had the necessary standing to invoke the protection of the exclusionary
rule. But in MacDonald vs. Unite States, 335 U.S. 461 (1948), Justice Robert Jackson joined
by Justice Felix Frankfurter, advanced the view that "even a guest may expect the shelter of
the rooftree he is under against criminal intrusion." This view finally became the official view
of the U.S. Supreme Court and was articulated in United States vs. Jeffers, 432 U.S 48
(1951). Nine years later, in 1960, in Jones vs. Unite States, 362 U.S. 257, 267, the U.S.
Supreme Court went a step further. Jones was a mere guest in the apartment unlawfully
searched but the Court nonetheless declared that the exclusionary rule protected him as
well. The concept of "person aggrieved by an unlawful search and seizure" was enlarged to
include "anyone legitimately on premise where the search occurs."
Shortly after the U.S. Supreme Court's Jones decision the U.S. Court of Appeals for the Fifth
Circuit held that the defendant organizer, sole stockholder and president of a corporation
had standing in a mail fraud prosecution against him to demand the return and suppression
of corporate property. Henzel vs. United States, 296 F 2d 650, 652 (5th Cir. 1961), supra. The
court conclude that the defendant had standing on two independent grounds: First he had
a sufficient interest in the property seized, and second he had an adequate interest in the
premises searched (just like in the case at bar). A postal inspector had unlawfully searched
the corporation' premises and had seized most of the corporation's book and records.
Looking to Jones, the court observed:
Jones clearly tells us, therefore, what is not required qualify one as a "person
aggrieved by an unlawful search and seizure." It tells us that appellant should not
have been precluded from objecting to the Postal Inspector's search and seizure of
the corporation's books and records merely because the appellant did not show

ownership or possession of the books and records or a substantial possessory interest

in the invade premises . . . (Henzel vs. United States, 296 F. 2d at 651). .
Henzel was soon followed by Villano vs. United States, 310 F. 2d 680, 683, (10th Cir. 1962).
In Villano, police officers seized two notebooks from a desk in the defendant's place of
employment; the defendant did not claim ownership of either; he asserted that several
employees (including himself) used the notebooks. The Court held that the employee had a
protected interest and that there also was an invasion of privacy.
Both Henzel and Villanoconsidered also the fact that the search and seizure were "directed
at" the moving defendant. Henzel vs. United States, 296 F. 2d at 682; Villano vs. United
States, 310 F. 2d at 683.
In a case in which an attorney closed his law office, placed his files in storage and went to
Puerto Rico, the Court of Appeals for the Eighth Circuit recognized his standing to move to
quash as unreasonable search and seizure under the Fourth Amendment of the U.S.
Constitution a grand jury subpoena duces tecum directed to the custodian of his files. The
Government contended that the petitioner had no standing because the books and papers
were physically in the possession of the custodian, and because the subpoena was directed
against the custodian. The court rejected the contention, holding that
Schwimmer legally had such possession, control and unrelinquished personal rights
in the books and papers as not to enable the question of unreasonable search and
seizure to be escaped through the mere procedural device of compelling a third-party
naked possessor to produce and deliver them. Schwimmer vs. United States, 232 F.
2d 855, 861 (8th Cir. 1956).
Aggrieved person doctrine where the search warrant s primarily directed against said
person gives "standing."
The latest United States decision squarely in point is United States vs. Birrell, 242 F. Supp.
191 (1965, U.S.D.C. S.D.N.Y.). The defendant had stored with an attorney certain files and
papers, which attorney, by the name of Dunn, was not, at the time of the seizing of the
records, Birrell's attorney. * Dunn, in turn, had stored most of the records at his home in the
country and on a farm which, according to Dunn's affidavit, was under his (Dunn's) "control
and management." The papers turned out to be private, personal and business papers
together with corporate books and records of certain unnamed corporations in which Birrell
did not even claim ownership. (All of these type records were seized in the case at bar).
Nevertheless, the search in Birrell was held invalid by the court which held that even though
Birrell did not own the premises where the records were stored, he had "standing" to move
for the return of all the papers and properties seized. The court, relying on Jones vs.
U.S., supra; U.S. vs. Antonelli Fireworks Co., 53 F. Supp. 870, Aff'd 155 F. 2d 631: Henzel vs.
U.S., supra; and Schwimmer vs. U.S., supra, pointed out that
It is overwhelmingly established that the searches here in question were directed
solely and exclusively against Birrell. The only person suggested in the papers as
having violated the law was Birrell. The first search warrant described the records as
having been used "in committing a violation of Title 18, United States Code, Section
1341, by the use of the mails by one Lowell M. Birrell, . . ." The second search warrant
was captioned: "United States of America vs. Lowell M. Birrell. (p. 198)
Possession (actual or constructive), no less than ownership, gives standing to move
to suppress. Such was the rule even before Jones. (p. 199)
If, as thus indicated Birrell had at least constructive possession of the records stored
with Dunn, it matters not whether he had any interest in the premises searched. See

also Jeffers v. United States, 88 U.S. Appl. D.C. 58, 187 F. 2d 498 (1950), affirmed 432
U.S. 48, 72 S. Ct. 93, 96 L. Ed. 459 (1951).
The ruling in the Birrell case was reaffirmed on motion for reargument; the United States did
not appeal from this decision. The factual situation in Birrell is strikingly similar to the case
of the present petitioners; as in Birrell, many personal and corporate papers were seized
from premises not petitioners' family residences; as in Birrell, the searches were "PRIMARILY
DIRECTED SOLETY AND EXCLUSIVELY" against the petitioners. Still both types of documents
were suppressed in Birrell because of the illegal search. In the case at bar, the petitioners
connection with the premises raided is much closer than in Birrell.
Thus, the petitioners have full standing to move for the quashing of all the warrants
regardless whether these were directed against residences in the narrow sense of the word,
as long as the documents were personal papers of the petitioners or (to the extent that they
were corporate papers) were held by them in a personal capacity or under their personal
control.
Prescinding a from the foregoing, this Court, at all events, should order the return to the
petitioners all personal andprivate papers and effects seized, no matter where these were
seized, whether from their residences or corporate offices or any other place or places.
The uncontradicted sworn statements of the petitioners in their, various pleadings submitted
to this Court indisputably show that amongst the things seized from the corporate offices
and other places were personal and private papers and effects belonging to the petitioners.
If there should be any categorization of the documents, papers and things which where the
objects of the unlawful searches and seizures, I submit that the grouping should be:
(a) personal or private papers of the petitioners were they were unlawfully seized, be it their
family residences offices, warehouses and/or premises owned and/or possessed (actually or
constructively) by them as shown in all the search and in the sworn applications filed in
securing the void search warrants and (b) purely corporate papers belonging to
corporations. Under such categorization or grouping, the determination of which unlawfully
seized papers, documents and things arepersonal/private of the petitioners or purely
corporate papers will have to be left to the lower courts which issued the void search
warrants in ultimately effecting the suppression and/or return of the said documents.
And as unequivocally indicated by the authorities above cited, the petitioners likewise have
clear legal standing to move for the suppression of purely corporate papers as "President
and/or General Manager" of the corporations involved as specifically mentioned in the void
search warrants.
Finally, I must articulate my persuasion that although the cases cited in my disquisition were
criminal prosecutions, the great clauses of the constitutional proscription on illegal searches
and seizures do not withhold the mantle of their protection from cases not criminal in origin
or nature.

G.R. No. 75885 May 27, 1987

BATAAN SHIPYARD & ENGINEERING CO., INC. (BASECO), petitioner,
vs.
PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT, CHAIRMAN JOVITO
SALONGA, COMMISSIONER MARY CONCEPCION BAUTISTA, COMMISSIONER RAMON
DIAZ, COMMISSIONER RAUL R. DAZA, COMMISSIONER QUINTIN S. DOROMAL, CAPT.
JORGE B. SIACUNCO, et al., respondents.
Apostol, Bernas, Gumaru, Ona and Associates for petitioner.
Vicente G. Sison for intervenor A.T. Abesamis.
NARVASA, J.:
Challenged in this special civil action of certiorari and prohibition by a private corporation
known as the Bataan Shipyard and Engineering Co., Inc. are: (1) Executive Orders Numbered
1 and 2, promulgated by President Corazon C. Aquino on February 28, 1986 and March 12,
1986, respectively, and (2) the sequestration, takeover, and other orders issued, and acts
done, in accordance with said executive orders by the Presidential Commission on Good
Government and/or its Commissioners and agents, affecting said corporation.
1. The Sequestration, Takeover, and Other Orders Complained of
a. The Basic Sequestration Order
The sequestration order which, in the view of the petitioner corporation, initiated all its
misery was issued on April 14, 1986 by Commissioner Mary Concepcion Bautista. It was
addressed to three of the agents of the Commission, hereafter simply referred to as PCGG. It
reads as follows:
RE: SEQUESTRATION ORDER
By virtue of the powers vested in the Presidential Commission on Good
Government, by authority of the President of the Philippines, you are hereby
directed to sequester the following companies.
1. Bataan Shipyard and Engineering Co., Inc. (Engineering
Island Shipyard and Mariveles Shipyard)
2. Baseco Quarry
3. Philippine Jai-Alai Corporation
4. Fidelity Management Co., Inc.
5. Romson Realty, Inc.
6. Trident Management Co.
7. New Trident Management
8. Bay Transport
9. And all affiliate companies of Alfredo "Bejo" Romualdez
You are hereby ordered:
1. To implement this sequestration order with a minimum disruption of these
companies' business activities.
2. To ensure the continuity of these companies as going concerns, the care
and maintenance of these assets until such time that the Office of the
President through the Commission on Good Government should decide
otherwise.
3. To report to the Commission on Good Government periodically.
Further, you are authorized to request for Military/Security Support from the
Military/Police authorities, and such other acts essential to the achievement of
this sequestration order. 1
b. Order for Production of Documents

On the strength of the above sequestration order, Mr. Jose M. Balde, acting for the PCGG,
addressed a letter dated April 18, 1986 to the President and other officers of petitioner firm,
reiterating an earlier request for the production of certain documents, to wit:
1. Stock Transfer Book
2. Legal documents, such as:
2.1. Articles of Incorporation
2.2. By-Laws
2.3. Minutes of the Annual Stockholders Meeting from 1973 to
1986
2.4. Minutes of the Regular and Special Meetings of the Board of
Directors from 1973 to 1986
2.5. Minutes of the Executive Committee Meetings from 1973 to
1986
2.6. Existing contracts with suppliers/contractors/others.
3. Yearly list of stockholders with their corresponding share/stockholdings from
1973 to 1986 duly certified by the Corporate Secretary.
4. Audited Financial Statements such as Balance Sheet, Profit & Loss and
others from 1973 to December 31, 1985.
5. Monthly Financial Statements for the current year up to March 31, 1986.
6. Consolidated Cash Position Reports from January to April 15, 1986.
7. Inventory listings of assets up dated up to March 31, 1986.
8. Updated schedule of Accounts Receivable and Accounts Payable.
9. Complete list of depository banks for all funds with the authorized
signatories for withdrawals thereof.
10. Schedule of company investments and placements. 2
The letter closed with the warning that if the documents were not submitted within five
days, the officers would be cited for "contempt in pursuance with Presidential Executive
Order Nos. 1 and 2."
c. Orders Re Engineer Island
(1) Termination of Contract for Security Services
A third order assailed by petitioner corporation, hereafter referred to simply as BASECO, is
that issued on April 21, 1986 by a Capt. Flordelino B. Zabala, a member of the task force
assigned to carry out the basic sequestration order. He sent a letter to BASECO's VicePresident for Finance, 3 terminating the contract for security services within the Engineer
Island compound between BASECO and "Anchor and FAIRWAYS" and "other civilian security
agencies," CAPCOM military personnel having already been assigned to the area,
(2) Change of Mode of Payment of Entry Charges
On July 15, 1986, the same Capt. Zabala issued a Memorandum addressed to "Truck Owners
and Contractors," particularly a "Mr. Buddy Ondivilla National Marine Corporation," advising
of the amendment in part of their contracts with BASECO in the sense that the stipulated
charges for use of the BASECO road network were made payable "upon entry and not
anymore subject to monthly billing as was originally agreed upon." 4
d. Aborted Contract for Improvement of Wharf at Engineer Island
On July 9, 1986, a PCGG fiscal agent, S. Berenguer, entered into a contract in behalf of
BASECO with Deltamarine Integrated Port Services, Inc., in virtue of which the latter
undertook to introduce improvements costing approximately P210,000.00 on the BASECO
wharf at Engineer Island, allegedly then in poor condition, avowedly to "optimize its
utilization and in return maximize the revenue which would flow into the government
coffers," in consideration of Deltamarine's being granted "priority in using the improved
portion of the wharf ahead of anybody" and exemption "from the payment of any charges

for the use of wharf including the area where it may install its bagging equipments" "until
the improvement remains in a condition suitable for port operations." 5 It seems however
that this contract was never consummated. Capt. Jorge B. Siacunco, "Head- (PCGG) BASECO
Management Team," advised Deltamarine by letter dated July 30, 1986 that "the new
management is not in a position to honor the said contract" and thus "whatever
improvements * * (may be introduced) shall be deemed unauthorized * * and shall be at * *
(Deltamarine's) own risk." 6
e. Order for Operation of Sesiman Rock Quarry, Mariveles, Bataan
By Order dated June 20, 1986, Commissioner Mary Bautista first directed a PCGG agent,
Mayor Melba O. Buenaventura, "to plan and implement progress towards maximizing the
continuous operation of the BASECO Sesiman Rock Quarry * * by conventional methods;" but
afterwards, Commissioner Bautista, in representation of the PCGG, authorized another party,
A.T. Abesamis, to operate the quarry, located at Mariveles, Bataan, an agreement to this
effect having been executed by them on September 17, 1986. 7
f. Order to Dispose of Scrap, etc.
By another Order of Commissioner Bautista, this time dated June 26, 1986, Mayor
Buenaventura was also "authorized to clean and beautify the Company's compound," and in
this connection, to dispose of or sell "metal scraps" and other materials, equipment and
machineries no longer usable, subject to specified guidelines and safeguards including audit
and verification. 8
g. The TAKEOVER Order
By letter dated July 14, 1986, Commissioner Ramon A. Diaz decreed the provisional takeover
by the PCGG of BASECO, "the Philippine Dockyard Corporation and all their affiliated
companies." 9 Diaz invoked the provisions of Section 3 (c) of Executive Order No. 1,
empowering the Commission
* * To provisionally takeover in the public interest or to prevent its disposal or
dissipation, business enterprises and properties taken over by the government
of the Marcos Administration or by entities or persons close to former
President Marcos, until the transactions leading to such acquisition by the
latter can be disposed of by the appropriate authorities.
A management team was designated to implement the order, headed by Capt. Siacunco,
and was given the following powers:
1. Conducts all aspects of operation of the subject companies;
2. Installs key officers, hires and terminates personnel as necessary;
3. Enters into contracts related to management and operation of the
companies;
4. Ensures that the assets of the companies are not dissipated and used
effectively and efficiently; revenues are duly accounted for; and disburses
funds only as may be necessary;
5. Does actions including among others, seeking of military support as may be
necessary, that will ensure compliance to this order;
6. Holds itself fully accountable to the Presidential Commission on Good
Government on all aspects related to this take-over order.
h. Termination of Services of BASECO Officers
Thereafter, Capt. Siacunco, sent letters to Hilario M. Ruiz, Manuel S. Mendoza, Moises M.
Valdez, Gilberto Pasimanero, and Benito R. Cuesta I, advising of the termination of their
services by the PCGG. 10
2. Petitioner's Plea and Postulates
It is the foregoing specific orders and acts of the PCGG and its members and agents which,
to repeat, petitioner BASECO would have this Court nullify. More particularly, BASECO prays
that this Court-

1) declare unconstitutional and void Executive Orders Numbered 1 and 2;

2) annul the sequestration order dated April- 14, 1986, and all other orders subsequently
issued and acts done on the basis thereof, inclusive of the takeover order of July 14, 1986
and the termination of the services of the BASECO executives. 11
a. Re Executive Orders No. 1 and 2, and the Sequestration and Takeover
Orders
While BASECO concedes that "sequestration without resorting to judicial action, might be
made within the context of Executive Orders Nos. 1 and 2 before March 25, 1986 when the
Freedom Constitution was promulgated, under the principle that the law promulgated by the
ruler under a revolutionary regime is the law of the land, it ceased to be acceptable when
the same ruler opted to promulgate the Freedom Constitution on March 25, 1986 wherein
under Section I of the same, Article IV (Bill of Rights) of the 1973 Constitution was adopted
providing, among others, that "No person shall be deprived of life, liberty and property
without due process of law." (Const., Art. I V, Sec. 1)." 12
It declares that its objection to the constitutionality of the Executive Orders "as well as the
Sequestration Order * * and Takeover Order * * issued purportedly under the authority of
said Executive Orders, rests on four fundamental considerations: First, no notice and hearing
was accorded * * (it) before its properties and business were taken over; Second, the PCGG
is not a court, but a purely investigative agency and therefore not competent to act as
prosecutor and judge in the same cause; Third, there is nothing in the issuances which
envisions any proceeding, process or remedy by which petitioner may expeditiously
challenge the validity of the takeover after the same has been effected; and Fourthly, being
directed against specified persons, and in disregard of the constitutional presumption of
innocence and general rules and procedures, they constitute a Bill of Attainder." 13
b. Re Order to Produce Documents
It argues that the order to produce corporate records from 1973 to 1986, which it has
apparently already complied with, was issued without court authority and infringed its
constitutional right against self-incrimination, and unreasonable search and seizure. 14
c. Re PCGG's Exercise of Right of Ownership and Management
BASECO further contends that the PCGG had unduly interfered with its right of dominion and
management of its business affairs by
1) terminating its contract for security services with Fairways & Anchor, without the consent
and against the will of the contracting parties; and amending the mode of payment of entry
fees stipulated in its Lease Contract with National Stevedoring & Lighterage Corporation,
these acts being in violation of the non-impairment clause of the constitution; 15
2) allowing PCGG Agent Silverio Berenguer to enter into an "anomalous contract" with
Deltamarine Integrated Port Services, Inc., giving the latter free use of BASECO premises; 16
3) authorizing PCGG Agent, Mayor Melba Buenaventura, to manage and operate its rock
quarry at Sesiman, Mariveles; 17
4) authorizing the same mayor to sell or dispose of its metal scrap, equipment, machinery
and other materials; 18
5) authorizing the takeover of BASECO, Philippine Dockyard Corporation, and all their
affiliated companies;
6) terminating the services of BASECO executives: President Hilario M. Ruiz; EVP Manuel S.
Mendoza; GM Moises M. Valdez; Finance Mgr. Gilberto Pasimanero; Legal Dept. Mgr. Benito R.
Cuesta I; 19
7) planning to elect its own Board of Directors; 20
8) allowing willingly or unwillingly its personnel to take, steal, carry away from petitioner's
premises at Mariveles * * rolls of cable wires, worth P600,000.00 on May 11, 1986; 21
9) allowing "indiscriminate diggings" at Engineer Island to retrieve gold bars supposed to
have been buried therein.22

3. Doubts, Misconceptions regarding Sequestration, Freeze and Takeover Orders

Many misconceptions and much doubt about the matter of sequestration, takeover and
freeze orders have been engendered by misapprehension, or incomplete comprehension if
not indeed downright ignorance of the law governing these remedies. It is needful that these
misconceptions and doubts be dispelled so that uninformed and useless debates about them
may be avoided, and arguments tainted b sophistry or intellectual dishonesty be quickly
exposed and discarded. Towards this end, this opinion will essay an exposition of the law on
the matter. In the process many of the objections raised by BASECO will be dealt with.
4. The Governing Law
a. Proclamation No. 3
The impugned executive orders are avowedly meant to carry out the explicit command of
the Provisional Constitution, ordained by Proclamation No. 3, 23 that the President-in the
exercise of legislative power which she was authorized to continue to wield "(until a
legislature is elected and convened under a new Constitution" "shall give priority to
measures to achieve the mandate of the people," among others to (r)ecover ill-gotten
properties amassed by the leaders and supporters of the previous regime and protect the
interest of the people through orders of sequestration or freezing of assets or accounts." 24
b. Executive Order No. 1
Executive Order No. 1 stresses the "urgent need to recover all ill-gotten wealth," and
postulates that "vast resources of the government have been amassed by former President
Ferdinand E. Marcos, his immediate family, relatives, and close associates both here and
abroad." 25 Upon these premises, the Presidential Commission on Good Government was
created, 26 "charged with the task of assisting the President in regard to (certain specified)
matters," among which was precisely* * The recovery of all in-gotten wealth accumulated by former President
Ferdinand E. Marcos, his immediate family, relatives, subordinates and close
associates, whether located in the Philippines or abroad, including
the takeover or sequestration of all business enterprises and entities owned or
controlled by them, during his administration, directly or through nominees,
by taking undue advantage of their public office and/or using their powers,
authority, influence, connections or relationship. 27
In relation to the takeover or sequestration that it was authorized to undertake in the
fulfillment of its mission, the PCGG was granted "power and authority" to do the following
particular acts, to wit:
1. To sequester or place or cause to be placed under its control or
possession any building or office wherein any ill-gotten wealth or properties
may be found, and any records pertaining thereto, in order to prevent their
destruction, concealment or disappearance which would frustrate or hamper
the investigation or otherwise prevent the Commission from accomplishing its
task.
2. To provisionally take over in the public interest or to prevent the disposal or
dissipation, business enterprises and properties taken over by the government
of the Marcos Administration or by entities or persons close to former
President Marcos, until the transactions leading to such acquisition by the
latter can be disposed of by the appropriate authorities.
3. To enjoin or restrain any actual or threatened commission of acts by any
person or entity that may render moot and academic, or frustrate or otherwise
make ineffectual the efforts of the Commission to carry out its task under this
order. 28
So that it might ascertain the facts germane to its objectives, it was granted power to
conduct investigations; require submission of evidence by subpoenae ad
testificandum and duces tecum; administer oaths; punish for contempt. 29 It was given

power also to promulgate such rules and regulations as may be necessary to carry out the
purposes of * * (its creation). 30
c. Executive Order No. 2
Executive Order No. 2 gives additional and more specific data and directions respecting "the
recovery of ill-gotten properties amassed by the leaders and supporters of the previous
regime." It declares that:
1) * * the Government of the Philippines is in possession of evidence
showing that there are assets and properties purportedly pertaining to former
Ferdinand E. Marcos, and/or his wife Mrs. Imelda Romualdez Marcos, their
close relatives, subordinates, business associates, dummies, agents or
nominees which had been or were acquired by them directly or indirectly,
through or as a result of the improper or illegal use of funds or properties
owned by the government of the Philippines or any of its branches,
instrumentalities, enterprises, banks or financial institutions, or by taking
undue advantage of their office, authority, influence, connections or
relationship, resulting in their unjust enrichment and causing grave damage
and prejudice to the Filipino people and the Republic of the Philippines:" and
2) * * said assets and properties are in the form of bank accounts, deposits,
trust accounts, shares of stocks, buildings, shopping centers, condominiums,
mansions, residences, estates, and other kinds of real and personal properties
in the Philippines and in various countries of the world." 31
Upon these premises, the President1) froze "all assets and properties in the Philippines in which former President
Marcos and/or his wife, Mrs. Imelda Romualdez Marcos, their close relatives,
subordinates, business associates, dummies, agents, or nominees have any
interest or participation;
2) prohibited former President Ferdinand Marcos and/or his wife * *, their close
relatives, subordinates, business associates, duties, agents, or nominees
from transferring, conveying, encumbering, concealing or dissipating said
assets or properties in the Philippines and abroad, pending the outcome of
appropriate proceedings in the Philippines to determine whether any such
assets or properties were acquired by them through or as a result of improper
or illegal use of or the conversion of funds belonging to the Government of the
Philippines or any of its branches, instrumentalities, enterprises, banks or
financial institutions, or by taking undue advantage of their official position,
authority, relationship, connection or influence to unjustly enrich themselves
at the expense and to the grave damage and prejudice of the Filipino people
and the Republic of the Philippines;
3) prohibited "any person from transferring, conveying, encumbering or
otherwise depleting or concealing such assets and properties or from assisting
or taking part in their transfer, encumbrance, concealment or dissipation
under pain of such penalties as are prescribed by law;" and
4) required "all persons in the Philippines holding such assets or properties,
whether located in the Philippines or abroad, in their names as nominees,
agents or trustees, to make full disclosure of the same to the Commission on
Good Government within thirty (30) days from publication of * (the) Executive
Order, * *. 32
d. Executive Order No. 14
A third executive order is relevant: Executive Order No. 14, 33 by which the PCGG is
empowered, "with the assistance of the Office of the Solicitor General and other government
agencies, * * to file and prosecute all cases investigated by it * * as may be warranted by its
findings." 34 All such cases, whether civil or criminal, are to be filed "with
the Sandiganbayanwhich shall have exclusive and original jurisdiction thereof." 35 Executive

Order No. 14 also pertinently provides that civil suits for restitution, reparation of damages,
or indemnification for consequential damages, forfeiture proceedings provided for under
Republic Act No. 1379, or any other civil actions under the Civil Code or other existing laws,
in connection with * * (said Executive Orders Numbered 1 and 2) may be filed separately
from and proceed independently of any criminal proceedings and may be proved by a
preponderance of evidence;" and that, moreover, the "technical rules of procedure and
evidence shall not be strictly applied to* * (said)civil cases." 36
5. Contemplated Situations
The situations envisaged and sought to be governed are self-evident, these being:
1) that "(i)ll-gotten properties (were) amassed by the leaders and supporters
of the previous regime";37
a) more particularly, that ill-gotten wealth (was) accumulated by former
President Ferdinand E. Marcos, his immediate family, relatives, subordinates
and close associates, * * located in the Philippines or abroad, * * (and)
business enterprises and entities (came to be) owned or controlled by them,
during * * (the Marcos) administration, directly or through nominees, by taking
undue advantage of their public office and/or using their powers, authority,
influence, Connections or relationship; 38
b) otherwise stated, that "there are assets and properties purportedly
pertaining to former President Ferdinand E. Marcos, and/or his wife Mrs.
Imelda Romualdez Marcos, their close relatives, subordinates, business
associates, dummies, agents or nominees which had been or were acquired
by them directly or indirectly, through or as a result of the improper or illegal
use of funds or properties owned by the Government of the Philippines or any
of its branches, instrumentalities, enterprises, banks or financial institutions,
or by taking undue advantage of their office, authority, influence, connections
or relationship, resulting in their unjust enrichment and causing grave damage
and prejudice to the Filipino people and the Republic of the Philippines"; 39
c) that "said assets and properties are in the form of bank accounts. deposits,
trust. accounts, shares of stocks, buildings, shopping centers, condominiums,
mansions, residences, estates, and other kinds of real and personal properties
in the Philippines and in various countries of the world;" 40 and
2) that certain "business enterprises and properties (were) taken over by the
government of the Marcos Administration or by entities or persons close to
former President Marcos. 41
6. Government's Right and Duty to Recover All Ill-gotten Wealth
There can be no debate about the validity and eminent propriety of the Government's plan
"to recover all ill-gotten wealth."
Neither can there be any debate about the proposition that assuming the above described
factual premises of the Executive Orders and Proclamation No. 3 to be true, to be
demonstrable by competent evidence, the recovery from Marcos, his family and his
dominions of the assets and properties involved, is not only a right but a duty on the part of
Government.
But however plain and valid that right and duty may be, still a balance must be sought with
the equally compelling necessity that a proper respect be accorded and adequate protection
assured, the fundamental rights of private property and free enterprise which are deemed
pillars of a free society such as ours, and to which all members of that society may without
exception lay claim.
* * Democracy, as a way of life enshrined in the Constitution, embraces as its
necessary components freedom of conscience, freedom of expression, and
freedom in the pursuit of happiness. Along with these freedoms are included
economic freedom and freedom of enterprise within reasonable bounds and
under proper control. * * Evincing much concern for the protection of property,

the Constitution distinctly recognizes the preferred position which real estate
has occupied in law for ages. Property is bound up with every aspect of social
life in a democracy as democracy is conceived in the Constitution. The
Constitution realizes the indispensable role which property, owned in
reasonable quantities and used legitimately, plays in the stimulation to
economic effort and the formation and growth of a solid social middle class
that is said to be the bulwark of democracy and the backbone of every
progressive and happy country. 42
a. Need of Evidentiary Substantiation in Proper Suit
Consequently, the factual premises of the Executive Orders cannot simply be assumed. They
will have to be duly established by adequate proof in each case, in a proper judicial
proceeding, so that the recovery of the ill-gotten wealth may be validly and properly
adjudged and consummated; although there are some who maintain that the fact-that an
immense fortune, and "vast resources of the government have been amassed by former
President Ferdinand E. Marcos, his immediate family, relatives, and close associates both
here and abroad," and they have resorted to all sorts of clever schemes and manipulations
to disguise and hide their illicit acquisitions-is within the realm of judicial notice, being of so
extensive notoriety as to dispense with proof thereof, Be this as it may, the requirement of
evidentiary substantiation has been expressly acknowledged, and the procedure to be
followed explicitly laid down, in Executive Order No. 14.
b. Need of Provisional Measures to Collect and Conserve Assets Pending Suits
Nor may it be gainsaid that pending the institution of the suits for the recovery of such "illgotten wealth" as the evidence at hand may reveal, there is an obvious and imperative need
for preliminary, provisional measures to prevent the concealment, disappearance,
destruction, dissipation, or loss of the assets and properties subject of the suits, or to
restrain or foil acts that may render moot and academic, or effectively hamper, delay, or
negate efforts to recover the same.
7. Provisional Remedies Prescribed by Law
To answer this need, the law has prescribed three (3) provisional remedies. These are: (1)
sequestration; (2) freeze orders; and (3) provisional takeover.
Sequestration and freezing are remedies applicable generally to unearthed instances of "illgotten wealth." The remedy of "provisional takeover" is peculiar to cases where "business
enterprises and properties (were) taken over by the government of the Marcos
Administration or by entities or persons close to former President Marcos." 43
a. Sequestration
By the clear terms of the law, the power of the PCGG to sequester property claimed to be
"ill-gotten" means to place or cause to be placed under its possession or control said
property, or any building or office wherein any such property and any records pertaining
thereto may be found, including "business enterprises and entities,"-for the purpose of
preventing the destruction, concealment or dissipation of, and otherwise conserving and
preserving, the same-until it can be determined, through appropriate judicial proceedings,
whether the property was in truth will- gotten," i.e., acquired through or as a result of
improper or illegal use of or the conversion of funds belonging to the Government or any of
its branches, instrumentalities, enterprises, banks or financial institutions, or by taking
undue advantage of official position, authority relationship, connection or influence, resulting
in unjust enrichment of the ostensible owner and grave damage and prejudice to the
State. 44 And this, too, is the sense in which the term is commonly understood in other
jurisdictions. 45
b. "Freeze Order"
A "freeze order" prohibits the person having possession or control of property alleged to
constitute "ill-gotten wealth" "from transferring, conveying, encumbering or otherwise
depleting or concealing such property, or from assisting or taking part in its transfer,
encumbrance, concealment, or dissipation." 46 In other words, it commands the possessor to

hold the property and conserve it subject to the orders and disposition of the authority
decreeing such freezing. In this sense, it is akin to a garnishment by which the possessor or
ostensible owner of property is enjoined not to deliver, transfer, or otherwise dispose of any
effects or credits in his possession or control, and thus becomes in a sense an involuntary
depositary thereof. 47
c. Provisional Takeover
In providing for the remedy of "provisional takeover," the law acknowledges the apparent
distinction between "ill gotten" "business enterprises and entities" (going concerns,
businesses in actual operation), generally, as to which the remedy of sequestration applies,
it being necessarily inferred that the remedy entails no interference, or the least possible
interference with the actual management and operations thereof; and "business enterprises
which were taken over by the government government of the Marcos Administration or by
entities or persons close to him," in particular, as to which a "provisional takeover" is
authorized, "in the public interest or to prevent disposal or dissipation of the
enterprises." 48 Such a "provisional takeover" imports something more than sequestration or
freezing, more than the placing of the business under physical possession and control, albeit
without or with the least possible interference with the management and carrying on of the
business itself. In a "provisional takeover," what is taken into custody is not only the physical
assets of the business enterprise or entity, but the business operation as well. It is in fine the
assumption of control not only over things, but over operations or on- going activities. But,
to repeat, such a "provisional takeover" is allowed only as regards "business enterprises *
* taken over by the government of the Marcos Administration or by entities or persons close
to former President Marcos."
d. No Divestment of Title Over Property Seized
It may perhaps be well at this point to stress once again the provisional, contingent
character of the remedies just described. Indeed the law plainly qualifies the remedy of takeover by the adjective, "provisional." These remedies may be resorted to only for a particular
exigency: to prevent in the public interest the disappearance or dissipation of property or
business, and conserve it pending adjudgment in appropriate proceedings of the primary
issue of whether or not the acquisition of title or other right thereto by the apparent owner
was attended by some vitiating anomaly. None of the remedies is meant to deprive the
owner or possessor of his title or any right to the property sequestered, frozen or taken over
and vest it in the sequestering agency, the Government or other person. This can be done
only for the causes and by the processes laid down by law.
That this is the sense in which the power to sequester, freeze or provisionally take over is to
be understood and exercised, the language of the executive orders in question leaves no
doubt. Executive Order No. 1 declares that the sequestration of property the acquisition of
which is suspect shall last "until the transactions leading to such acquisition * * can be
disposed of by the appropriate authorities." 49 Executive Order No. 2 declares that the assets
or properties therein mentioned shall remain frozen "pending the outcome of appropriate
proceedings in the Philippines to determine whether any such assets or properties were
acquired" by illegal means. Executive Order No. 14 makes clear that judicial proceedings are
essential for the resolution of the basic issue of whether or not particular assets are "illgotten," and resultant recovery thereof by the Government is warranted.
e. State of Seizure Not To Be Indefinitely Maintained; The Constitutional
Command
There is thus no cause for the apprehension voiced by BASECO 50 that sequestration,
freezing or provisional takeover is designed to be an end in itself, that it is the device
through which persons may be deprived of their property branded as "ill-gotten," that it is
intended to bring about a permanent, rather than a passing, transitional state of affairs. That
this is not so is quite explicitly declared by the governing rules.
Be this as it may, the 1987 Constitution should allay any lingering fears about the duration
of these provisional remedies. Section 26 of its Transitory Provisions, 51 lays down the

relevant rule in plain terms, apart from extending ratification or confirmation (although not
really necessary) to the institution by presidential fiat of the remedy of sequestration and
freeze orders:
SEC. 26. The authority to issue sequestration or freeze orders under
Proclamation No. 3 dated March 25, 1986 in relation to the recovery of illgotten wealth shag remain operative for not more thaneighteen months after
the ratification of this Constitution. However, in the national interest, as
certified by the President, the Congress may extend said period.
A sequestration or freeze order shall be issued only upon showing of a prima
facie case. The order and the list of the sequestered or frozen properties shall
forthwith be registered with the proper court. For orders issued before the
ratification of this Constitution, the corresponding judicial action or proceeding
shall be filed within six months from its ratification. For those issued after such
ratification, the judicial action or proceeding shall be commenced within six
months from the issuance thereof.
The sequestration or freeze order is deemed automatically lifted if no judicial
action or proceeding is commenced as herein provided. 52
f. Kinship to Attachment Receivership
As thus described, sequestration, freezing and provisional takeover are akin to the
provisional remedy of preliminary attachment, or receivership. 53 By attachment, a sheriff
seizes property of a defendant in a civil suit so that it may stand as security for the
satisfaction of any judgment that may be obtained, and not disposed of, or dissipated, or
lost intentionally or otherwise, pending the action. 54 By receivership, property, real or
personal, which is subject of litigation, is placed in the possession and control of a receiver
appointed by the Court, who shall conserve it pending final determination of the title or right
of possession over it. 55 All these remedies sequestration, freezing, provisional, takeover,
attachment and receivership are provisional, temporary, designed for-particular
exigencies, attended by no character of permanency or finality, and always subject to the
control of the issuing court or agency.
g. Remedies, Non-Judicial
Parenthetically, that writs of sequestration or freeze or takeover orders are not issued by a
court is of no moment. The Solicitor General draws attention to the writ of distraint and levy
which since 1936 the Commissioner of Internal Revenue has been by law authorized to issue
against property of a delinquent taxpayer. 56 BASECO itself declares that it has not
manifested "a rigid insistence on sequestration as a purely judicial remedy * * (as it feels)
that the law should not be ossified to a point that makes it insensitive to change." What it
insists on, what it pronounces to be its "unyielding position, is that any change in procedure,
or the institution of a new one, should conform to due process and the other prescriptions of
the Bill of Rights of the Constitution." 57 It is, to be sure, a proposition on which there can be
no disagreement.
h. Orders May Issue Ex Parte
Like the remedy of preliminary attachment and receivership, as well as delivery of personal
property in replevinsuits, sequestration and provisional takeover writs may issue ex
parte. 58 And as in preliminary attachment, receivership, and delivery of personality, no
objection of any significance may be raised to the ex parte issuance of an order of
sequestration, freezing or takeover, given its fundamental character of temporariness or
conditionality; and taking account specially of the constitutionally expressed "mandate of
the people to recover ill-gotten properties amassed by the leaders and supporters of the
previous regime and protect the interest of the people;" 59 as well as the obvious need to
avoid alerting suspected possessors of "ill-gotten wealth" and thereby cause that
disappearance or loss of property precisely sought to be prevented, and the fact, just as selfevident, that "any transfer, disposition, concealment or disappearance of said assets and

properties would frustrate, obstruct or hamper the efforts of the Government" at the just
recovery thereof. 60
8. Requisites for Validity
What is indispensable is that, again as in the case of attachment and receivership, there
exist a prima facie factual foundation, at least, for the sequestration, freeze or takeover
order, and adequate and fair opportunity to contest it and endeavor to cause its negation or
nullification. 61
Both are assured under the executive orders in question and the rules and regulations
promulgated by the PCGG.
a. Prima Facie Evidence as Basis for Orders
Executive Order No. 14 enjoins that there be "due regard to the requirements of fairness and
due process." 62Executive Order No. 2 declares that with respect to claims on allegedly "illgotten" assets and properties, "it is the position of the new democratic government that
President Marcos * * (and other parties affected) be afforded fair opportunity to contest
these claims before appropriate Philippine authorities." 63 Section 7 of the Commission's
Rules and Regulations provides that sequestration or freeze (and takeover) orders issue
upon the authority of at least two commissioners, based on theaffirmation or complaint of
an interested party, or motu proprio when the Commission has reasonable grounds to
believe that the issuance thereof is warranted. 64 A similar requirement is now found in
Section 26, Art. XVIII of the 1987 Constitution, which requires that a "sequestration or freeze
order shall be issued only upon showing of a prima facie case." 65
b. Opportunity to Contest
And Sections 5 and 6 of the same Rules and Regulations lay down the procedure by which a
party may seek to set aside a writ of sequestration or freeze order, viz:
SECTION 5. Who may contend.-The person against whom a writ of
sequestration or freeze or hold order is directed may request the lifting
thereof in writing, either personally or through counsel within five (5) days
from receipt of the writ or order, or in the case of a hold order, from date of
knowledge thereof.
SECTION 6. Procedure for review of writ or order.-After due hearing or motu
proprio for good cause shown, the Commission may lift the writ or order
unconditionally or subject to such conditions as it may deem necessary,
taking into consideration the evidence and the circumstance of the case. The
resolution of the commission may be appealed by the party concerned to the
Office of the President of the Philippines within fifteen (15) days from receipt
thereof.
Parenthetically, even if the requirement for a prima facie showing of "ill- gotten wealth" were
not expressly imposed by some rule or regulation as a condition to warrant the
sequestration or freezing of property contemplated in the executive orders in question, it
would nevertheless be exigible in this jurisdiction in which the Rule of Law prevails and
official acts which are devoid of rational basis in fact or law, or are whimsical and capricious,
are condemned and struck down. 66
9. Constitutional Sanction of Remedies
If any doubt should still persist in the face of the foregoing considerations as to the validity
and propriety of sequestration, freeze and takeover orders, it should be dispelled by the fact
that these particular remedies and the authority of the PCGG to issue them have received
constitutional approbation and sanction. As already mentioned, the Provisional or "Freedom"
Constitution recognizes the power and duty of the President to enact "measures to achieve
the mandate of the people to * * * (recover ill- gotten properties amassed by the leaders and
supporters of the previous regime and protect the interest of the people through orders of
sequestration or freezing of assets or accounts." And as also already adverted to, Section
26, Article XVIII of the 1987 Constitution67 treats of, and ratifies the "authority to issue
sequestration or freeze orders under Proclamation No. 3 dated March 25, 1986."

The institution of these provisional remedies is also premised upon the State's inherent
police power, regarded, as t lie power of promoting the public welfare by restraining and
regulating the use of liberty and property," 68 and as "the most essential, insistent and
illimitable of powers * * in the promotion of general welfare and the public interest," 69 and
said to be co-extensive with self-protection and * * not inaptly termed (also) the'law of
overruling necessity." " 70
10. PCGG not a "Judge"; General Functions
It should also by now be reasonably evident from what has thus far been said that the PCGG
is not, and was never intended to act as, a judge. Its general function is to conduct
investigations in order to collect evidenceestablishing instances of "ill-gotten wealth;" issue
sequestration, and such orders as may be warranted by the evidence thus collected and as
may be necessary to preserve and conserve the assets of which it takes custody and control
and prevent their disappearance, loss or dissipation; and eventually file and prosecute in the
proper court of competent jurisdiction all cases investigated by it as may be warranted by its
findings. It does not try and decide, or hear and determine, or adjudicate with any character
of finality or compulsion, cases involving the essential issue of whether or not property
should be forfeited and transferred to the State because "ill-gotten" within the meaning of
the Constitution and the executive orders. This function is reserved to the designated court,
in this case, the Sandiganbayan. 71 There can therefore be no serious regard accorded to the
accusation, leveled by BASECO, 72 that the PCGG plays the perfidious role of prosecutor and
judge at the same time.
11. Facts Preclude Grant of Relief to Petitioner
Upon these premises and reasoned conclusions, and upon the facts disclosed by the record,
hereafter to be discussed, the petition cannot succeed. The writs of certiorari and prohibition
prayed for will not be issued.
The facts show that the corporation known as BASECO was owned or controlled by President
Marcos "during his administration, through nominees, by taking undue advantage of his
public office and/or using his powers, authority, or influence, " and that it was by and
through the same means, that BASECO had taken over the business and/or assets of the
National Shipyard and Engineering Co., Inc., and other government-owned or controlled
entities.
12. Organization and Stock Distribution of BASECO
BASECO describes itself in its petition as "a shiprepair and shipbuilding company * *
incorporated as a domestic private corporation * * (on Aug. 30, 1972) by a consortium of
Filipino shipowners and shipping executives. Its main office is at Engineer Island, Port Area,
Manila, where its Engineer Island Shipyard is housed, and its main shipyard is located at
Mariveles Bataan." 73 Its Articles of Incorporation disclose that its authorized capital stock is
P60,000,000.00 divided into 60,000 shares, of which 12,000 shares with a value of
P12,000,000.00 have been subscribed, and on said subscription, the aggregate sum of
P3,035,000.00 has been paid by the incorporators. 74 The same articles Identify the
incorporators, numbering fifteen (15), as follows: (1) Jose A. Rojas, (2) Anthony P. Lee, (3)
Eduardo T. Marcelo, (4) Jose P. Fernandez, (5) Generoso Tanseco, (6) Emilio T. Yap, (7) Antonio
M. Ezpeleta, (8) Zacarias Amante, (9) Severino de la Cruz, (10) Jose Francisco, (11) Dioscoro
Papa, (12) Octavio Posadas, (13) Manuel S. Mendoza, (14) Magiliw Torres, and (15) Rodolfo
Torres.
By 1986, however, of these fifteen (15) incorporators, six (6) had ceased to be stockholders,
namely: (1) Generoso Tanseco, (2) Antonio Ezpeleta, (3) Zacarias Amante, (4) Octavio
Posadas, (5) Magiliw Torres, and (6) Rodolfo Torres. As of this year, 1986, there were twenty
(20) stockholders listed in BASECO's Stock and Transfer Book. 75 Their names and the
number of shares respectively held by them are as follows:
1. Jose A. Rojas

1,248
shares

2. Severino G.
de la Cruz

1,248
shares

3. Emilio T. Yap

2,508
shares

4. Jose
Fernandez

1,248
shares

5. Jose Francisco

128 shares

6. Manuel S.
Mendoza

96 shares

7. Anthony P.
Lee

1,248
shares

8. Hilario M. Ruiz

32 shares

9. Constante L.
Farias

8 shares

10. Fidelity
Management,
Inc.

65,882
shares

11. Trident
Management

7,412
shares

12. United Phil.

Lines

1,240
shares

13. Renato M.
Tanseco

8 shares

14. Fidel Ventura

8 shares

15. Metro Bay

Drydock

136,370
shares

16. Manuel
Jacela

1 share

17. Jonathan G.
Lu

1 share

18. Jose J.
Tanchanco

1 share

19. Dioscoro
Papa

128 shares

20. Edward T.
Marcelo

4 shares

TOTAL

218,819
shares.

13 Acquisition of NASSCO by BASECO

Barely six months after its incorporation, BASECO acquired from National Shipyard & Steel
Corporation, or NASSCO, a government-owned or controlled corporation, the latter's
shipyard at Mariveles, Bataan, known as the Bataan National Shipyard (BNS), and except
for NASSCO's Engineer Island Shops and certain equipment of the BNS, consigned for future
negotiation all its structures, buildings, shops, quarters, houses, plants, equipment and
facilities, in stock or in transit. This it did in virtue of a "Contract of Purchase and Sale with
Chattel Mortgage" executed on February 13, 1973. The price was P52,000,000.00. As partial
payment thereof, BASECO delivered to NASSCO a cash bond of P11,400,000.00, convertible
into cash within twenty-four (24) hours from completion of the inventory undertaken
pursuant to the contract. The balance of P41,600,000.00, with interest at seven percent
(7%) per annum, compounded semi-annually, was stipulated to be paid in equal semi-annual
installments over a term of nine (9) years, payment to commence after a grace period of two
(2) years from date of turnover of the shipyard to BASECO. 76
14. Subsequent Reduction of Price; Intervention of Marcos
Unaccountably, the price of P52,000,000.00 was reduced by more than one-half, to
P24,311,550.00, about eight (8) months later. A document to this effect was executed on
October 9, 1973, entitled "Memorandum Agreement," and was signed for NASSCO by Arturo
Pacificador, as Presiding Officer of the Board of Directors, and David R. Ines, as General
Manager. 77 This agreement bore, at the top right corner of the first page, the word
"APPROVED" in the handwriting of President Marcos, followed by his usual full signature. The
document recited that a down payment of P5,862,310.00 had been made by BASECO, and
the balance of P19,449,240.00 was payable in equal semi-annual installments over nine (9)
years after a grace period of two (2) years, with interest at 7% per annum.
15. Acquisition of 300 Hectares from Export Processing Zone Authority
On October 1, 1974, BASECO acquired three hundred (300) hectares of land in Mariveles
from the Export Processing Zone Authority for the price of P10,047,940.00 of which, as set
out in the document of sale, P2,000.000.00 was paid upon its execution, and the balance
stipulated to be payable in installments. 78
16. Acquisition of Other Assets of NASSCO; Intervention of Marcos
Some nine months afterwards, or on July 15, 1975, to be precise, BASECO, again with the
intervention of President Marcos, acquired ownership of the rest of the assets of NASSCO
which had not been included in the first two (2) purchase documents. This was accomplished
by a deed entitled "Contract of Purchase and Sale," 79 which, like the Memorandum of
Agreement dated October 9, 1973 supra also bore at the upper right-hand corner of its first
page, the handwritten notation of President Marcos reading, "APPROVED, July 29, 1973," and
underneath it, his usual full signature. Transferred to BASECO were NASSCO's "ownership
and all its titles, rights and interests over all equipment and facilities including structures,
buildings, shops, quarters, houses, plants and expendable or semi-expendable assets,
located at the Engineer Island, known as the Engineer Island Shops, including all the
equipment of the Bataan National Shipyards (BNS) which were excluded from the sale of
NBS to BASECO but retained by BASECO and all other selected equipment and machineries
of NASSCO at J. Panganiban Smelting Plant." In the same deed, NASSCO committed itself to

cooperate with BASECO for the acquisition from the National Government or other
appropriate Government entity of Engineer Island. Consideration for the sale was set at
P5,000,000.00; a down payment of P1,000,000.00 appears to have been made, and the
balance was stipulated to be paid at 7% interest per annum in equal semi annual
installments over a term of nine (9) years, to commence after a grace period of two (2)
years. Mr. Arturo Pacificador again signed for NASSCO, together with the general manager,
Mr. David R. Ines.
17. Loans Obtained
It further appears that on May 27, 1975 BASECO obtained a loan from the NDC, taken from
"the last available Japanese war damage fund of $19,000,000.00," to pay for "Japanese
made heavy equipment (brand new)." 80 On September 3, 1975, it got another loan also
from the NDC in the amount of P30,000,000.00 (id.). And on January 28, 1976, it got still
another loan, this time from the GSIS, in the sum of P12,400,000.00. 81 The claim has been
made that not a single centavo has been paid on these loans. 82
18. Reports to President Marcos
In September, 1977, two (2) reports were submitted to President Marcos regarding BASECO.
The first was contained in a letter dated September 5, 1977 of Hilario M. Ruiz, BASECO
president. 83 The second was embodied in a confidential memorandum dated September 16,
1977 of Capt. A.T. Romualdez. 84 They further disclose the fine hand of Marcos in the affairs
of BASECO, and that of a Romualdez, a relative by affinity.
a. BASECO President's Report
In his letter of September 5, 1977, BASECO President Ruiz reported to Marcos that there had
been "no orders or demands for ship construction" for some time and expressed the fear
that if that state of affairs persisted, BASECO would not be able to pay its debts to the
Government, which at the time stood at the not inconsiderable amount of
P165,854,000.00. 85 He suggested that, to "save the situation," there be a "spin-off (of their)
shipbuilding activities which shall be handled exclusively by an entirely new corporation to
be created;" and towards this end, he informed Marcos that BASECO was
* * inviting NDC and LUSTEVECO to participate by converting the NDC
shipbuilding loan to BASECO amounting to P341.165M and assuming and
converting a portion of BASECO's shipbuilding loans from REPACOM
amounting to P52.2M or a total of P83.365M as NDC's equity contribution in
the new corporation. LUSTEVECO will participate by absorbing and converting
a portion of the REPACOM loan of Bay Shipyard and Drydock, Inc., amounting
to P32.538M. 86
b. Romualdez' Report
Capt. A.T. Romualdez' report to the President was submitted eleven (11) days later. It
opened with the following caption:
MEMORANDUM:
FOR : The President
SUBJECT: An Evaluation and Re-assessment of a Performance of a Mission
FROM: Capt. A.T. Romualdez.
Like Ruiz, Romualdez wrote that BASECO faced great difficulties in meeting its loan
obligations due chiefly to the fact that "orders to build ships as expected * * did not
materialize."
He advised that five stockholders had "waived and/or assigned their holdings inblank," these
being: (1) Jose A. Rojas, (2) Severino de la Cruz, (3) Rodolfo Torres, (4) Magiliw Torres, and (5)
Anthony P. Lee. Pointing out that "Mr. Magiliw Torres * * is already dead and Mr. Jose A. Rojas
had a major heart attack," he made the following quite revealing, and it may be added, quite
cynical and indurate recommendation, to wit:

* * (that) their replacements (be effected) so we can register their names in

the stock book prior to the implementation of your instructions to pass a
board resolution to legalize the transfers under SEC regulations;
2. By getting their replacements, the families cannot question us later on; and
3. We will owe no further favors from them. 87
He also transmitted to Marcos, together with the report, the following documents: 88
1. Stock certificates indorsed and assigned in blank with assignments and
waivers; 89
2. The articles of incorporation, the amended articles, and the by-laws of
BASECO;
3. Deed of Sales, wherein NASSCO sold to BASECO four (4) parcels of land in
"Engineer Island", Port Area, Manila;
4. Transfer Certificate of Title No. 124822 in the name of BASECO, covering
"Engineer Island";
5. Contract dated October 9, 1973, between NASSCO and BASECO re-structure
and equipment at Mariveles, Bataan;
6. Contract dated July 16, 1975, between NASSCO and BASECO re-structure
and equipment at Engineer Island, Port Area Manila;
7. Contract dated October 1, 1974, between EPZA and BASECO re 300
hectares of land at Mariveles, Bataan;
8. List of BASECO's fixed assets;
9. Loan Agreement dated September 3, 1975, BASECO's loan from NDC of
P30,000,000.00;
10. BASECO-REPACOM Agreement dated May 27, 1975;
11. GSIS loan to BASECO dated January 28, 1976 of P12,400,000.00 for the
housing facilities for BASECO's rank-and-file employees. 90
Capt. Romualdez also recommended that BASECO's loans be restructured "until such period
when BASECO will have enough orders for ships in order for the company to meet loan
obligations," and that
An LOI may be issued to government agencies using floating equipment, that
a linkage scheme be applied to a certain percent of BASECO's net profit as
part of BASECO's amortization payments tomake it justifiable for you, Sir. 91
It is noteworthy that Capt. A.T. Romualdez does not appear to be a stockholder or officer of
BASECO, yet he has presented a report on BASECO to President Marcos, and his report
demonstrates intimate familiarity with the firm's affairs and problems.
19. Marcos' Response to Reports
President Marcos lost no time in acting on his subordinates' recommendations, particularly
as regards the "spin-off" and the "linkage scheme" relative to "BASECO's amortization
payments."
a. Instructions re "Spin-Off"
Under date of September 28, 1977, he addressed a Memorandum to Secretary Geronimo
Velasco of the Philippine National Oil Company and Chairman Constante Farias of the
National Development Company, directing them "to participate in the formation of a new
corporation resulting from the spin-off of the shipbuilding component of BASECO along the
following guidelines:
a. Equity participation of government shall be through LUSTEVECO and NDC in
the amount of P115,903,000 consisting of the following obligations of BASECO
which are hereby authorized to be converted to equity of the said new
corporation, to wit:
1. NDC P83,865,000 (P31.165M loan & P52.2M Reparation)

2. LUSTEVECO P32,538,000 (Reparation)

b. Equity participation of government shall be in the form of non- voting
shares.
For immediate compliance. 92
Mr. Marcos' guidelines were promptly complied with by his subordinates. Twenty-two (22)
days after receiving their president's memorandum, Messrs. Hilario M. Ruiz, Constante L.
Farias and Geronimo Z. Velasco, in representation of their respective corporations,
executed a PRE-INCORPORATION AGREEMENT dated October 20, 1977. 93 In it, they
undertook to form a shipbuilding corporation to be known as "PHIL-ASIA SHIPBUILDING
CORPORATION," to bring to realization their president's instructions. It would seem that the
new corporation ultimately formed was actually named "Philippine Dockyard Corporation
(PDC)." 94
b. Letter of Instructions No. 670
Mr. Marcos did not forget Capt. Romualdez' recommendation for a letter of instructions. On
February 14, 1978, he issued Letter of Instructions No. 670 addressed to the Reparations
Commission REPACOM the Philippine National Oil Company (PNOC), the Luzon Stevedoring
Company (LUSTEVECO), and the National Development Company (NDC). What is
commanded therein is summarized by the Solicitor General, with pithy and not inaccurate
observations as to the effects thereof (in italics), as follows:
* * 1) the shipbuilding equipment procured by BASECO through reparations be
transferred to NDC subject to reimbursement by NDC to BASECO (of) the
amount of s allegedly representing the handling and incidental expenses
incurred by BASECO in the installation of said equipment (so instead of NDC
getting paid on its loan to BASECO, it was made to pay BASECO instead the
amount of P18.285M); 2) the shipbuilding equipment procured from
reparations through EPZA, now in the possession of BASECO and BSDI (Bay
Shipyard & Drydocking, Inc.) be transferred to LUSTEVECO through PNOC; and
3) the shipbuilding equipment (thus) transferred be invested by LUSTEVECO,
acting through PNOC and NDC, as the government's equity participation in a
shipbuilding corporation to be established in partnership with the private
sector.
xxx xxx xxx
And so, through a simple letter of instruction and memorandum, BASECO's
loan obligation to NDC and REPACOM * * in the total amount of P83.365M and
BSD's REPACOM loan of P32.438M were wiped out and converted into nonvoting preferred shares. 95
20. Evidence of Marcos'
Ownership of BASECO
It cannot therefore be gainsaid that, in the context of the proceedings at bar, the actuality of
the control by President Marcos of BASECO has been sufficiently shown.
Other evidence submitted to the Court by the Solicitor General proves that President Marcos
not only exercised control over BASECO, but also that he actually owns well nigh one
hundred percent of its outstanding stock.
It will be recalled that according to petitioner- itself, as of April 23, 1986, there were 218,819
shares of stock outstanding, ostensibly owned by twenty (20) stockholders. 96 Four of these
twenty are juridical persons: (1) Metro Bay Drydock, recorded as holding 136,370 shares;
(2) Fidelity Management, Inc., 65,882 shares; (3) Trident Management, 7,412 shares; and (4)
United Phil. Lines, 1,240 shares. The first three corporations, among themselves, own an
aggregate of 209,664 shares of BASECO stock, or 95.82% of the outstanding stock.
Now, the Solicitor General has drawn the Court's attention to the intriguing circumstance
that found in Malacanang shortly after the sudden flight of President Marcos, were
certificates corresponding to more than ninety-five percent (95%) of all the outstanding

shares of stock of BASECO, endorsed in blank, together with deeds of assignment of

practically all the outstanding shares of stock of the three (3) corporations above mentioned
(which hold 95.82% of all BASECO stock), signed by the owners thereof although not
notarized. 97
More specifically, found in Malacanang (and now in the custody of the PCGG) were:
1) the deeds of assignment of all 600 outstanding shares of Fidelity
Management Inc. which supposedly owns as aforesaid 65,882 shares of
BASECO stock;
2) the deeds of assignment of 2,499,995 of the 2,500,000 outstanding shares
of Metro Bay Drydock Corporation which allegedly owns 136,370 shares of
BASECO stock;
3) the deeds of assignment of 800 outstanding shares of Trident Management
Co., Inc. which allegedly owns 7,412 shares of BASECO stock, assigned in
blank; 98 and
4) stock certificates corresponding to 207,725 out of the 218,819 outstanding
shares of BASECO stock; that is, all but 5 % all endorsed in blank. 99
While the petitioner's counsel was quick to dispute this asserted fact, assuring this Court
that the BASECO stockholders were still in possession of their respective stock certificates
and had "never endorsed * * them in blank or to anyone else," 100 that denial is exposed by
his own prior and subsequent recorded statements as a mere gesture of defiance rather
than a verifiable factual declaration.
By resolution dated September 25, 1986, this Court granted BASECO's counsel a period of
10 days "to SUBMIT,as undertaken by him, * * the certificates of stock issued to the
stockholders of * * BASECO as of April 23, 1986, as listed in Annex 'P' of the
petition.' 101 Counsel thereafter moved for extension; and in his motion dated October 2,
1986, he declared inter alia that "said certificates of stock are in the possession of third
parties, among whom being the respondents themselves * * and petitioner is still
endeavoring to secure copies thereof from them." 102 On the same day he filed another
motion praying that he be allowed "to secure copies of the Certificates of Stock in the name
of Metro Bay Drydock, Inc., and of all other Certificates, of Stock of petitioner's stockholders
in possession of respondents." 103
In a Manifestation dated October 10, 1986,, 104 the Solicitor General not unreasonably
argued that counsel's aforestated motion to secure copies of the stock certificates "confirms
the fact that stockholders of petitioner corporation are not in possession of * * (their)
certificates of stock," and the reason, according to him, was "that 95% of said shares * *
have been endorsed in blank and found in Malacaang after the former President and his
family fled the country." To this manifestation BASECO's counsel replied on November 5,
1986, as already mentioned, Stubbornly insisting that the firm's stockholders had not really
assigned their stock. 105
In view of the parties' conflicting declarations, this Court resolved on November 27, 1986
among other things "to require * * the petitioner * * to deposit upon proper receipt with
Clerk of Court Juanito Ranjo the originals of the stock certificates alleged to be in its
possession or accessible to it, mentioned and described in Annex 'P' of its petition, (and
other pleadings) * * within ten (10) days from notice." 106 In a motion filed on December 5,
1986, 107 BASECO's counsel made the statement, quite surprising in the premises, that "it
will negotiate with the owners (of the BASECO stock in question) to allow petitioner to
borrow from them, if available, the certificates referred to" but that "it needs a more
sufficient time therefor" (sic). BASECO's counsel however eventually had to confess inability
to produce the originals of the stock certificates, putting up the feeble excuse that while he
had "requested the stockholders to allow * * (him) to borrow said certificates, * * some of * *
(them) claimed that they had delivered the certificates to third parties by way of pledge
and/or to secure performance of obligations, while others allegedly have entrusted them to
third parties in view of last national emergency." 108 He has conveniently omitted, nor has

he offered to give the details of the transactions adverted to by him, or to explain why he
had not impressed on the supposed stockholders the primordial importance of convincing
this Court of their present custody of the originals of the stock, or if he had done so, why the
stockholders are unwilling to agree to some sort of arrangement so that the originals of their
certificates might at the very least be exhibited to the Court. Under the circumstances, the
Court can only conclude that he could not get the originals from the stockholders for the
simple reason that, as the Solicitor General maintains, said stockholders in truth no longer
have them in their possession, these having already been assigned in blank to then
President Marcos.
21. Facts Justify Issuance of Sequestration and Takeover Orders
In the light of the affirmative showing by the Government that, prima facie at least, the
stockholders and directors of BASECO as of April, 1986 109 were mere "dummies,"
nominees or alter egos of President Marcos; at any rate, that they are no longer owners of
any shares of stock in the corporation, the conclusion cannot be avoided that said
stockholders and directors have no basis and no standing whatever to cause the filing and
prosecution of the instant proceeding; and to grant relief to BASECO, as prayed for in the
petition, would in effect be to restore the assets, properties and business sequestered and
taken over by the PCGG to persons who are "dummies," nominees or alter egos of the
former president.
From the standpoint of the PCGG, the facts herein stated at some length do indeed show
that the private corporation known as BASECO was "owned or controlled by former President
Ferdinand E. Marcos * * during his administration, * * through nominees, by taking
advantage of * * (his) public office and/or using * * (his) powers, authority, influence * *,"
and that NASSCO and other property of the government had been taken over by BASECO;
and the situation justified the sequestration as well as the provisional takeover of the
corporation in the public interest, in accordance with the terms of Executive Orders No. 1
and 2, pending the filing of the requisite actions with the Sandiganbayan to cause
divestment of title thereto from Marcos, and its adjudication in favor of the Republic
pursuant to Executive Order No. 14.
As already earlier stated, this Court agrees that this assessment of the facts is correct;
accordingly, it sustains the acts of sequestration and takeover by the PCGG as being in
accord with the law, and, in view of what has thus far been set out in this opinion,
pronounces to be without merit the theory that said acts, and the executive orders pursuant
to which they were done, are fatally defective in not according to the parties affected prior
notice and hearing, or an adequate remedy to impugn, set aside or otherwise obtain relief
therefrom, or that the PCGG had acted as prosecutor and judge at the same time.
22. Executive Orders Not a Bill of Attainder
Neither will this Court sustain the theory that the executive orders in question are a bill of
attainder. 110 "A bill of attainder is a legislative act which inflicts punishment without
judicial trial." 111 "Its essence is the substitution of a legislative for a judicial determination
of guilt." 112
In the first place, nothing in the executive orders can be reasonably construed as a
determination or declaration of guilt. On the contrary, the executive orders, inclusive of
Executive Order No. 14, make it perfectly clear that any judgment of guilt in the amassing or
acquisition of "ill-gotten wealth" is to be handed down by a judicial tribunal, in this case,
the Sandiganbayan, upon complaint filed and prosecuted by the PCGG. In the second place,
no punishment is inflicted by the executive orders, as the merest glance at their provisions
will immediately make apparent. In no sense, therefore, may the executive orders be
regarded as a bill of attainder.
23. No Violation of Right against Self-Incrimination and Unreasonable Searches and Seizures
BASECO also contends that its right against self incrimination and unreasonable searches
and seizures had been transgressed by the Order of April 18, 1986 which required it "to
produce corporate records from 1973 to 1986 under pain of contempt of the Commission if it

fails to do so." The order was issued upon the authority of Section 3 (e) of Executive Order
No. 1, treating of the PCGG's power to "issue subpoenas requiring * * the production of such
books, papers, contracts, records, statements of accounts and other documents as may be
material to the investigation conducted by the Commission, " and paragraph (3), Executive
Order No. 2 dealing with its power to "require all persons in the Philippines holding * *
(alleged "ill-gotten") assets or properties, whether located in the Philippines or abroad, in
their names as nominees, agents or trustees, to make full disclosure of the same * *." The
contention lacks merit.
It is elementary that the right against self-incrimination has no application to juridical
persons.
While an individual may lawfully refuse to answer incriminating questions
unless protected by an immunity statute, it does not follow that a corporation,
vested with special privileges and franchises, may refuse to show its hand
when charged with an abuse ofsuchprivileges * * 113
Relevant jurisprudence is also cited by the Solicitor General. 114
* * corporations are not entitled to all of the constitutional protections which
private individuals have. * *They are not at all within the privilege against
self-incrimination, although this court more than once has said that the
privilege runs very closely with the 4th Amendment's Search and Seizure
provisions.It is also settled that an officer of the company cannot refuse to
produce its records in its possession upon the plea that they will either
incriminate him or may incriminate it." (Oklahoma Press Publishing Co. v.
Walling, 327 U.S. 186; emphasis, the Solicitor General's).
* * The corporation is a creature of the state. It is presumed to be incorporated
for the benefit of the public. It received certain special privileges and
franchises, and holds them subject to the laws of the state and the limitations
of its charter. Its powers are limited by law. It can make no contract not
authorized by its charter. Its rights to act as a corporation are only preserved
to it so long as it obeys the laws of its creation. There is a reserve right in the
legislature to investigate its contracts and find out whether it has exceeded its
powers. It would be a strange anomaly to hold that a state, having chartered a
corporation to make use of certain franchises, could not, in the exercise of
sovereignty, inquire how these franchises had been employed, and whether
they had been abused, and demand the production of the corporate books
and papers for that purpose. The defense amounts to this, that an officer of
the corporation which is charged with a criminal violation of the statute may
plead the criminality of such corporation as a refusal to produce its books. To
state this proposition is to answer it. While an individual may lawfully refuse
to answer incriminating questions unless protected by an immunity statute, it
does not follow that a corporation, vested with special privileges and
franchises may refuse to show its hand when charged with an abuse of such
privileges. (Wilson v. United States, 55 Law Ed., 771, 780 [emphasis, the
Solicitor General's])
At any rate, Executive Order No. 14-A, amending Section 4 of Executive Order No. 14 assures
protection to individuals required to produce evidence before the PCGG against any possible
violation of his right against self-incrimination. It gives them immunity from prosecution on
the basis of testimony or information he is compelled to present. As amended, said Section 4
now provides that
xxx xxx xxx
The witness may not refuse to comply with the order on the basis of his
privilege against self-incrimination; but no testimony or other information
compelled under the order (or any information directly or indirectly derived
from such testimony, or other information) may be used against the witness in

any criminal case, except a prosecution for perjury, giving a false statement,
or otherwise failing to comply with the order.
The constitutional safeguard against unreasonable searches and seizures finds no
application to the case at bar either. There has been no search undertaken by any agent or
representative of the PCGG, and of course no seizure on the occasion thereof.
24. Scope and Extent of Powers of the PCGG
One other question remains to be disposed of, that respecting the scope and extent of the
powers that may be wielded by the PCGG with regard to the properties or businesses placed
under sequestration or provisionally taken over. Obviously, it is not a question to which an
answer can be easily given, much less one which will suffice for every conceivable situation.
a. PCGG May Not Exercise Acts of Ownership
One thing is certain, and should be stated at the outset: the PCGG cannot exercise acts of
dominion over property sequestered, frozen or provisionally taken over. AS already earlier
stressed with no little insistence, the act of sequestration; freezing or provisional takeover of
property does not import or bring about a divestment of title over said property; does not
make the PCGG the owner thereof. In relation to the property sequestered, frozen or
provisionally taken over, the PCGG is a conservator, not an owner. Therefore, it can not
perform acts of strict ownership; and this is specially true in the situations contemplated by
the sequestration rules where, unlike cases of receivership, for example, no court exercises
effective supervision or can upon due application and hearing, grant authority for the
performance of acts of dominion.
Equally evident is that the resort to the provisional remedies in question should entail the
least possible interference with business operations or activities so that, in the event that
the accusation of the business enterprise being "ill gotten" be not proven, it may be
returned to its rightful owner as far as possible in the same condition as it was at the time of
sequestration.
b. PCGG Has Only Powers of Administration
The PCGG may thus exercise only powers of administration over the property or business
sequestered or provisionally taken over, much like a court-appointed receiver, 115 such as
to bring and defend actions in its own name; receive rents; collect debts due; pay
outstanding debts; and generally do such other acts and things as may be necessary to
fulfill its mission as conservator and administrator. In this context, it may in addition enjoin
or restrain any actual or threatened commission of acts by any person or entity that may
render moot and academic, or frustrate or otherwise make ineffectual its efforts to carry out
its task; punish for direct or indirect contempt in accordance with the Rules of Court; and
seek and secure the assistance of any office, agency or instrumentality of the
government. 116 In the case of sequestered businesses generally (i.e., going concerns,
businesses in current operation), as in the case of sequestered objects, its essential role, as
already discussed, is that of conservator, caretaker, "watchdog" or overseer. It is not that of
manager, or innovator, much less an owner.
c. Powers over Business Enterprises Taken Over by Marcos or Entities or
Persons Close to him; Limitations Thereon
Now, in the special instance of a business enterprise shown by evidence to have been "taken
over by the government of the Marcos Administration or by entities or persons close to
former President Marcos," 117 the PCGG is given power and authority, as already adverted
to, to "provisionally take (it) over in the public interest or to prevent * * (its) disposal or
dissipation;" and since the term is obviously employed in reference to going concerns, or
business enterprises in operation, something more than mere physical custody is connoted;
the PCGG may in this case exercise some measure of control in the operation, running, or
management of the business itself. But even in this special situation, the intrusion into
management should be restricted to the minimum degree necessary to accomplish the
legislative will, which is "to prevent the disposal or dissipation" of the business enterprise.
There should be no hasty, indiscriminate, unreasoned replacement or substitution of

management officials or change of policies, particularly in respect of viable establishments.

In fact, such a replacement or substitution should be avoided if at all possible, and
undertaken only when justified by demonstrably tenable grounds and in line with the stated
objectives of the PCGG. And it goes without saying that where replacement of management
officers may be called for, the greatest prudence, circumspection, care and attention should accompany that undertaking to the end that truly competent, experienced and
honest managers may be recruited. There should be no role to be played in this area by rank
amateurs, no matter how wen meaning. The road to hell, it has been said, is paved with
good intentions. The business is not to be experimented or played around with, not run into
the ground, not driven to bankruptcy, not fleeced, not ruined. Sight should never be lost
sight of the ultimate objective of the whole exercise, which is to turn over the business to
the Republic, once judicially established to be "ill-gotten." Reason dictates that it is only
under these conditions and circumstances that the supervision, administration and control of
business enterprises provisionally taken over may legitimately be exercised.
d. Voting of Sequestered Stock; Conditions Therefor
So, too, it is within the parameters of these conditions and circumstances that the PCGG
may properly exercise the prerogative to vote sequestered stock of corporations, granted to
it by the President of the Philippines through a Memorandum dated June 26, 1986. That
Memorandum authorizes the PCGG, "pending the outcome of proceedings to determine the
ownership of * * (sequestered) shares of stock," "to vote such shares of stock as it may have
sequestered in corporations at all stockholders' meetings called for the election of directors,
declaration of dividends, amendment of the Articles of Incorporation, etc." The Memorandum
should be construed in such a manner as to be consistent with, and not contradictory of the
Executive Orders earlier promulgated on the same matter. There should be no exercise of
the right to vote simply because the right exists, or because the stocks sequestered
constitute the controlling or a substantial part of the corporate voting power. The stock is not
to be voted to replace directors, or revise the articles or by-laws, or otherwise bring about
substantial changes in policy, program or practice of the corporation except for
demonstrably weighty and defensible grounds, and always in the context of the stated
purposes of sequestration or provisional takeover, i.e., to prevent the dispersion or undue
disposal of the corporate assets. Directors are not to be voted out simply because the power
to do so exists. Substitution of directors is not to be done without reason or rhyme, should
indeed be shunned if at an possible, and undertaken only when essential to prevent
disappearance or wastage of corporate property, and always under such circumstances as
assure that the replacements are truly possessed of competence, experience and probity.
In the case at bar, there was adequate justification to vote the incumbent directors out of
office and elect others in their stead because the evidence showed prima facie that the
former were just tools of President Marcos and were no longer owners of any stock in the
firm, if they ever were at all. This is why, in its Resolution of October 28, 1986;118 this Court
declared that
Petitioner has failed to make out a case of grave abuse or excess of
jurisdiction in respondents' calling and holding of a stockholders' meeting for
the election of directors as authorized by the Memorandum of the President *
* (to the PCGG) dated June 26, 1986, particularly, where as in this case, the
government can, through its designated directors, properly exercise control
and management over what appear to be properties and assets owned and
belonging to the government itself and over which the persons who appear in
this case on behalf of BASECO have failed to show any right or even any
shareholding in said corporation.
It must however be emphasized that the conduct of the PCGG nominees in the BASECO
Board in the management of the company's affairs should henceforth be guided and
governed by the norms herein laid down. They should never for a moment allow themselves
to forget that they are conservators, not owners of the business; they are fiduciaries,
trustees, of whom the highest degree of diligence and rectitude is, in the premises, required.

25. No Sufficient Showing of Other Irregularities

As to the other irregularities complained of by BASECO, i.e., the cancellation or revision, and
the execution of certain contracts, inclusive of the termination of the employment of some of
its executives, 119 this Court cannot, in the present state of the evidence on record, pass
upon them. It is not necessary to do so. The issues arising therefrom may and will be left for
initial determination in the appropriate action. But the Court will state that absent any
showing of any important cause therefor, it will not normally substitute its judgment for that
of the PCGG in these individual transactions. It is clear however, that as things now stand,
the petitioner cannot be said to have established the correctness of its submission that the
acts of the PCGG in question were done without or in excess of its powers, or with grave
abuse of discretion.
WHEREFORE, the petition is dismissed. The temporary restraining order issued on October
14, 1986 is lifted.
Yap, Fernan, Paras, Gancayco and Sarmiento, JJ., concur.

G.R. No. L-27155 May 18, 1978

PHILIPPINE NATIONAL BANK, petitioner,
vs.
THE COURT OF APPEALS, RITA GUECO TAPNIO, CECILIO GUECO and THE PHILIPPINE
AMERICAN GENERAL INSURANCE COMPANY, INC., respondents.
Medina, Locsin, Corua, & Sumbillo for petitioner.
Manuel Lim & Associates for private respondents.
ANTONIO, J.:
Certiorari to review the decision of the Court of Appeals which affirmed the judgment of the
Court of First Instance of Manila in Civil Case No. 34185, ordering petitioner, as third-party
defendant, to pay respondent Rita Gueco Tapnio, as third-party plaintiff, the sum of
P2,379.71, plus 12% interest per annum from September 19, 1957 until the same is fully
paid, P200.00 attorney's fees and costs, the same amounts which Rita Gueco Tapnio was
ordered to pay the Philippine American General Insurance Co., Inc., to be paid directly to the
Philippine American General Insurance Co., Inc. in full satisfaction of the judgment rendered
against Rita Gueco Tapnio in favor of the former; plus P500.00 attorney's fees for Rita Gueco
Tapnio and costs. The basic action is the complaint filed by Philamgen (Philippine American
General Insurance Co., Inc.) as surety against Rita Gueco Tapnio and Cecilio Gueco, for the
recovery of the sum of P2,379.71 paid by Philamgen to the Philippine National Bank on
behalf of respondents Tapnio and Gueco, pursuant to an indemnity agreement. Petitioner
Bank was made third-party defendant by Tapnio and Gueco on the theory that their failure to
pay the debt was due to the fault or negligence of petitioner.
The facts as found by the respondent Court of Appeals, in affirming the decision of the Court
of First Instance of Manila, are quoted hereunder:
Plaintiff executed its Bond, Exh. A, with defendant Rita Gueco Tapnio as
principal, in favor of the Philippine National Bank Branch at San Fernando,
Pampanga, to guarantee the payment of defendant Rita Gueco Tapnio's
account with said Bank. In turn, to guarantee the payment of whatever
amount the bonding company would pay to the Philippine National Bank, both
defendants executed the indemnity agreement, Exh. B. Under the terms and
conditions of this indemnity agreement, whatever amount the plaintiff would
pay would earn interest at the rate of 12% per annum, plus attorney's fees in
the amount of 15 % of the whole amount due in case of court litigation.
The original amount of the bond was for P4,000.00; but the amount was later
reduced to P2,000.00.
It is not disputed that defendant Rita Gueco Tapnio was indebted to the bank
in the sum of P2,000.00, plus accumulated interests unpaid, which she failed
to pay despite demands. The Bank wrote a letter of demand to plaintiff, as per
Exh. C; whereupon, plaintiff paid the bank on September 18, 1957, the full
amount due and owing in the sum of P2,379.91, for and on account of
defendant Rita Gueco's obligation (Exhs. D and D-1).
Plaintiff, in turn, made several demands, both verbal and written, upon
defendants (Exhs. E and F), but to no avail.
Defendant Rita Gueco Tapnio admitted all the foregoing facts. She claims,
however, when demand was made upon her by plaintiff for her to pay her

debt to the Bank, that she told the Plaintiff that she did not consider herself to
be indebted to the Bank at all because she had an agreement with one
Jacobo-Nazon whereby she had leased to the latter her unused export sugar
quota for the 1956-1957 agricultural year, consisting of 1,000 piculs at the
rate of P2.80 per picul, or for a total of P2,800.00, which was already in excess
of her obligation guaranteed by plaintiff's bond, Exh. A. This lease agreement,
according to her, was with the knowledge of the bank. But the Bank has
placed obstacles to the consummation of the lease, and the delay caused by
said obstacles forced 'Nazon to rescind the lease contract. Thus, Rita Gueco
Tapnio filed her third-party complaint against the Bank to recover from the
latter any and all sums of money which may be adjudged against her and in
favor of the plaitiff plus moral damages, attorney's fees and costs.
Insofar as the contentions of the parties herein are concerned, we quote with
approval the following findings of the lower court based on the evidence
presented at the trial of the case:
It has been established during the trial that Mrs. Tapnio had an
export sugar quota of 1,000 piculs for the agricultural year
1956-1957 which she did not need. She agreed to allow Mr.
Jacobo C. Tuazon to use said quota for the consideration of
P2,500.00 (Exh. "4"-Gueco). This agreement was called a
contract of lease of sugar allotment.
At the time of the agreement, Mrs. Tapnio was indebted to the
Philippine National Bank at San Fernando, Pampanga. Her
indebtedness was known as a crop loan and was secured by a
mortgage on her standing crop including her sugar quota
allocation for the agricultural year corresponding to said
standing crop. This arrangement was necessary in order that
when Mrs. Tapnio harvests, the P.N.B., having a lien on the crop,
may effectively enforce collection against her. Her sugar cannot
be exported without sugar quota allotment Sometimes,
however, a planter harvest less sugar than her quota, so her
excess quota is utilized by another who pays her for its use.
This is the arrangement entered into between Mrs. Tapnio and
Mr. Tuazon regarding the former's excess quota for 1956-1957
(Exh. "4"-Gueco).
Since the quota was mortgaged to the P.N.B., the contract of
lease had to be approved by said Bank, The same was
submitted to the branch manager at San Fernando, Pampanga.
The latter required the parties to raise the consideration of
P2.80 per picul or a total of P2,800.00 (Exh. "2-Gueco")
informing them that "the minimum lease rental acceptable to
the Bank, is P2.80 per picul." In a letter addressed to the branch
manager on August 10, 1956, Mr. Tuazon informed the manager
that he was agreeable to raising the consideration to P2.80 per
picul. He further informed the manager that he was ready to
pay said amount as the funds were in his folder which was kept
in the bank.

Explaining the meaning of Tuazon's statement as to the funds, it

was stated by him that he had an approved loan from the bank
but he had not yet utilized it as he was intending to use it to
pay for the quota. Hence, when he said the amount needed to
pay Mrs. Tapnio was in his folder which was in the bank, he
meant and the manager understood and knew he had an
approved loan available to be used in payment of the quota. In
said Exh. "6-Gueco", Tuazon also informed the manager that he
would want for a notice from the manager as to the time when
the bank needed the money so that Tuazon could sign the
corresponding promissory note.
Further Consideration of the evidence discloses that when the branch
manager of the Philippine National Bank at San Fernando recommended the
approval of the contract of lease at the price of P2.80 per picul (Exh. 1 1Bank), whose recommendation was concurred in by the Vice-president of said
Bank, J. V. Buenaventura, the board of directors required that the amount be
raised to 13.00 per picul. This act of the board of directors was communicated
to Tuazon, who in turn asked for a reconsideration thereof. On November 19,
1956, the branch manager submitted Tuazon's request for reconsideration to
the board of directors with another recommendation for the approval of the
lease at P2.80 per picul, but the board returned the recommendation unacted
upon, considering that the current price prevailing at the time was P3.00 per
picul (Exh. 9-Bank).
The parties were notified of the refusal on the part of the board of directors of
the Bank to grant the motion for reconsideration. The matter stood as it was
until February 22, 1957, when Tuazon wrote a letter (Exh. 10-Bank informing
the Bank that he was no longer interested to continue the deal, referring to
the lease of sugar quota allotment in favor of defendant Rita Gueco Tapnio.
The result is that the latter lost the sum of P2,800.00 which she should have
received from Tuazon and which she could have paid the Bank to cancel off
her indebtedness,
The court below held, and in this holding we concur that failure of the
negotiation for the lease of the sugar quota allocation of Rita Gueco Tapnio to
Tuazon was due to the fault of the directors of the Philippine National Bank,
The refusal on the part of the bank to approve the lease at the rate of P2.80
per picul which, as stated above, would have enabled Rita Gueco Tapnio to
realize the amount of P2,800.00 which was more than sufficient to pay off her
indebtedness to the Bank, and its insistence on the rental price of P3.00 per
picul thus unnecessarily increasing the value by only a difference of P200.00.
inevitably brought about the rescission of the lease contract to the damage
and prejudice of Rita Gueco Tapnio in the aforesaid sum of P2,800.00. The
unreasonableness of the position adopted by the board of directors of the
Philippine National Bank in refusing to approve the lease at the rate of P2.80
per picul and insisting on the rate of P3.00 per picul, if only to increase the
retail value by only P200.00 is shown by the fact that all the accounts of Rita
Gueco Tapnio with the Bank were secured by chattel mortgage on standing
crops, assignment of leasehold rights and interests on her properties, and
surety bonds, aside from the fact that from Exh. 8-Bank, it appears that she

was offering to execute a real estate mortgage in favor of the Bank to replace
the surety bond This statement is further bolstered by the fact that Rita Gueco
Tapnio apparently had the means to pay her obligation fact that she has been
granted several value of almost P80,000.00 for the agricultural years from
1952 to 56. 1
Its motion for the reconsideration of the decision of the Court of Appeals having been
denied, petitioner filed the present petition.
The petitioner contends that the Court of Appeals erred:
(1) In finding that the rescission of the lease contract of the 1,000 piculs of sugar quota
allocation of respondent Rita Gueco Tapnio by Jacobo C. Tuazon was due to the unjustified
refusal of petitioner to approve said lease contract, and its unreasonable insistence on the
rental price of P3.00 instead of P2.80 per picul; and
(2) In not holding that based on the statistics of sugar price and prices of sugar quota in the
possession of the petitioner, the latter's Board of Directors correctly fixed the rental of price
per picul of 1,000 piculs of sugar quota leased by respondent Rita Gueco Tapnio to Jacobo C.
Tuazon at P3.00 per picul.
Petitioner argued that as an assignee of the sugar quota of Tapnio, it has the right, both
under its own Charter and under the Corporation Law, to safeguard and protect its rights
and interests under the deed of assignment, which include the right to approve or
disapprove the said lease of sugar quota and in the exercise of that authority, its
Board of Directors necessarily had authority to determine and fix the rental price per picul of
the sugar quota subject of the lease between private respondents and Jacobo C. Tuazon. It
argued further that both under its Charter and the Corporation Law, petitioner, acting thru
its Board of Directors, has the perfect right to adopt a policy with respect to fixing of rental
prices of export sugar quota allocations, and in fixing the rentals at P3.00 per picul, it did not
act arbitrarily since the said Board was guided by statistics of sugar price and prices of sugar
quotas prevailing at the time. Since the fixing of the rental of the sugar quota is a function
lodged with petitioner's Board of Directors and is a matter of policy, the respondent Court of
Appeals could not substitute its own judgment for that of said Board of Directors, which
acted in good faith, making as its basis therefore the prevailing market price as shown by
statistics which were then in their possession.
Finally, petitioner emphasized that under the appealed judgment, it shall suffer a great
injustice because as a creditor, it shall be deprived of a just claim against its debtor
(respondent Rita Gueco Tapnio) as it would be required to return to respondent Philamgen
the sum of P2,379.71, plus interest, which amount had been previously paid to petitioner by
said insurance company in behalf of the principal debtor, herein respondent Rita Gueco
Tapnio, and without recourse against respondent Rita Gueco Tapnio.
We must advert to the rule that this Court's appellate jurisdiction in proceedings of this
nature is limited to reviewing only errors of law, accepting as conclusive the factual fin dings
of the Court of Appeals upon its own assessment of the evidence. 2
The contract of lease of sugar quota allotment at P2.50 per picul between Rita Gueco Tapnio
and Jacobo C. Tuazon was executed on April 17, 1956. This contract was submitted to the
Branch Manager of the Philippine National Bank at San Fernando, Pampanga. This
arrangement was necessary because Tapnio's indebtedness to petitioner was secured by a
mortgage on her standing crop including her sugar quota allocation for the agricultural year
corresponding to said standing crop. The latter required the parties to raise the
consideration to P2.80 per picul, the minimum lease rental acceptable to the Bank, or a total

of P2,800.00. Tuazon informed the Branch Manager, thru a letter dated August 10, 1956,
that he was agreeable to raising the consideration to P2.80 per picul. He further informed
the manager that he was ready to pay the said sum of P2,800.00 as the funds were in his
folder which was kept in the said Bank. This referred to the approved loan of Tuazon from the
Bank which he intended to use in paying for the use of the sugar quota. The Branch Manager
submitted the contract of lease of sugar quota allocation to the Head Office on September 7,
1956, with a recommendation for approval, which recommendation was concurred in by the
Vice-President of the Bank, Mr. J. V. Buenaventura. This notwithstanding, the Board of
Directors of petitioner required that the consideration be raised to P3.00 per picul.
Tuazon, after being informed of the action of the Board of Directors, asked for a
reconsideration thereof. On November 19, 1956, the Branch Manager submitted the request
for reconsideration and again recommended the approval of the lease at P2.80 per picul, but
the Board returned the recommendation unacted, stating that the current price prevailing at
that time was P3.00 per picul.
On February 22, 1957, Tuazon wrote a letter, informing the Bank that he was no longer
interested in continuing the lease of sugar quota allotment. The crop year 1956-1957 ended
and Mrs. Tapnio failed to utilize her sugar quota, resulting in her loss in the sum of P2,800.00
which she should have received had the lease in favor of Tuazon been implemented.
It has been clearly shown that when the Branch Manager of petitioner required the parties to
raise the consideration of the lease from P2.50 to P2.80 per picul, or a total of P2,800-00,
they readily agreed. Hence, in his letter to the Branch Manager of the Bank on August 10,
1956, Tuazon informed him that the minimum lease rental of P2.80 per picul was acceptable
to him and that he even offered to use the loan secured by him from petitioner to pay in full
the sum of P2,800.00 which was the total consideration of the lease. This arrangement was
not only satisfactory to the Branch Manager but it was also approves by Vice-President J. V.
Buenaventura of the PNB. Under that arrangement, Rita Gueco Tapnio could have realized
the amount of P2,800.00, which was more than enough to pay the balance of her
indebtedness to the Bank which was secured by the bond of Philamgen.
There is no question that Tapnio's failure to utilize her sugar quota for the crop year 19561957 was due to the disapproval of the lease by the Board of Directors of petitioner. The
issue, therefore, is whether or not petitioner is liable for the damage caused.
As observed by the trial court, time is of the essence in the approval of the lease of sugar
quota allotments, since the same must be utilized during the milling season, because any
allotment which is not filled during such milling season may be reallocated by the Sugar
Quota Administration to other holders of allotments. 3 There was no proof that there was any
other person at that time willing to lease the sugar quota allotment of private respondents
for a price higher than P2.80 per picul. "The fact that there were isolated transactions
wherein the consideration for the lease was P3.00 a picul", according to the trial court, "does
not necessarily mean that there are always ready takers of said price. " The
unreasonableness of the position adopted by the petitioner's Board of Directors is shown by
the fact that the difference between the amount of P2.80 per picul offered by Tuazon and the
P3.00 per picul demanded by the Board amounted only to a total sum of P200.00.
Considering that all the accounts of Rita Gueco Tapnio with the Bank were secured by chattel
mortgage on standing crops, assignment of leasehold rights and interests on her properties,
and surety bonds and that she had apparently "the means to pay her obligation to the Bank,
as shown by the fact that she has been granted several sugar crop loans of the total value of
almost P80,000.00 for the agricultural years from 1952 to 1956", there was no reasonable

basis for the Board of Directors of petitioner to have rejected the lease agreement because
of a measly sum of P200.00.
While petitioner had the ultimate authority of approving or disapproving the proposed lease
since the quota was mortgaged to the Bank, the latter certainly cannot escape its
responsibility of observing, for the protection of the interest of private respondents, that
degree of care, precaution and vigilance which the circumstances justly demand in
approving or disapproving the lease of said sugar quota. The law makes it imperative that
every person "must in the exercise of his rights and in the performance of his duties, act
with justice, give everyone his due, and observe honesty and good faith, 4 This petitioner
failed to do. Certainly, it knew that the agricultural year was about to expire, that by its
disapproval of the lease private respondents would be unable to utilize the sugar quota in
question. In failing to observe the reasonable degree of care and vigilance which the
surrounding circumstances reasonably impose, petitioner is consequently liable for the
damages caused on private respondents. Under Article 21 of the New Civil Code, "any
person who wilfully causes loss or injury to another in a manner that is contrary to morals,
good customs or public policy shall compensate the latter for the damage." The afore-cited
provisions on human relations were intended to expand the concept of torts in this
jurisdiction by granting adequate legal remedy for the untold number of moral wrongs which
is impossible for human foresight to specifically provide in the statutes. 5
A corporation is civilly liable in the same manner as natural persons for torts, because
"generally speaking, the rules governing the liability of a principal or master for a tort
committed by an agent or servant are the same whether the principal or master be a natural
person or a corporation, and whether the servant or agent be a natural or artificial person.
All of the authorities agree that a principal or master is liable for every tort which he
expressly directs or authorizes, and this is just as true of a corporation as of a natural
person, A corporation is liable, therefore, whenever a tortious act is committed by an officer
or agent under express direction or authority from the stockholders or members acting as a
body, or, generally, from the directors as the governing body." 6
WHEREFORE, in view of the foregoing, the decision of the Court of Appeals is hereby
AFFIRMED.
Fernando, Aquino, Concepcion, Jr., and Santos, JJ., concur.

G.R. No. 126297

February 11, 2008

PROFESSIONAL SERVICES, INC., petitioner,

vs.
THE COURT OF APPEALS and NATIVIDAD and ENRIQUE AGANA, respondents,
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - x
G.R. No. 126467

February 11, 2008

NATIVIDAD (Substituted by her children MARCELINO AGANA III, ENRIQUE AGANA,

JR., EMMA AGANA ANDAYA, JESUS AGANA, and RAYMUND AGANA) and ENRIQUE
AGANA, petitioners,
vs.
THE COURT OF APPEALS and JUAN FUENTES, respondents,
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - x
G.R. No. 127590

February 11, 2008

MIGUEL AMPIL, petitioner,

vs.
THE COURT OF APPEALS and NATIVIDAD AGANA and ENRIQUE AGANA, respondents.
RESOLUTION
SANDOVAL-GUTIERREZ, J.:
As the hospital industry changes, so must the laws and jurisprudence governing hospital
liability. The immunity from medical malpractice traditionally accorded to hospitals has to be
eroded if we are to balance the interest of the patients and hospitals under the present
setting.
Before this Court is a motion for reconsideration filed by Professional Services, Inc. (PSI),
petitioner in G.R. No. 126297, assailing the Courts First Division Decision dated January 31,
2007, finding PSI and Dr. Miguel Ampil, petitioner in G.R. No. 127590, jointly and severally
liable for medical negligence.
A brief revisit of the antecedent facts is imperative.
On April 4, 1984, Natividad Agana was admitted at the Medical City General Hospital
(Medical City) because of difficulty of bowel movement and bloody anal discharge. Dr. Ampil
diagnosed her to be suffering from "cancer of the sigmoid." Thus, on April 11, 1984, Dr.
Ampil, assisted by the medical staff1 of Medical City, performed an anterior resection surgery
upon her. During the surgery, he found that the malignancy in her sigmoid area had spread
to her left ovary, necessitating the removal of certain portions of it. Thus, Dr. Ampil obtained
the consent of Atty. Enrique Agana, Natividads husband, to permit Dr. Juan Fuentes,
respondent in G.R. No. 126467, to perform hysterectomy upon Natividad.
Dr. Fuentes performed and completed the hysterectomy. Afterwards, Dr. Ampil took over,
completed the operation and closed the incision. However, the operation appeared to be
flawed. In the corresponding Record of Operation dated April 11, 1984, the attending nurses
entered these remarks:
sponge count lacking 2
announced to surgeon searched done (sic) but to no avail continue for closure.
After a couple of days, Natividad complained of excruciating pain in her anal region. She
consulted both Dr. Ampil and Dr. Fuentes about it. They told her that the pain was the
natural consequence of the surgical operation performed upon her. Dr. Ampil recommended

that Natividad consult an oncologist to treat the cancerous nodes which were not removed
during the operation.
On May 9, 1984, Natividad, accompanied by her husband, went to the United States to seek
further treatment. After four (4) months of consultations and laboratory examinations,
Natividad was told that she was free of cancer. Hence, she was advised to return to the
Philippines.
On August 31, 1984, Natividad flew back to the Philippines, still suffering from pains. Two (2)
weeks thereafter, her daughter found a piece of gauze protruding from her vagina. Dr. Ampil
was immediately informed. He proceeded to Natividads house where he managed to extract
by hand a piece of gauze measuring 1.5 inches in width. Dr. Ampil then assured Natividad
that the pains would soon vanish.
Despite Dr. Ampils assurance, the pains intensified, prompting Natividad to seek treatment
at the Polymedic General Hospital. While confined thereat, Dr. Ramon Gutierrez detected the
presence of a foreign object in her vagina -- a foul-smelling gauze measuring 1.5 inches in
width. The gauze had badly infected her vaginal vault. A recto-vaginal fistula had formed in
her reproductive organ which forced stool to excrete through the vagina. Another surgical
operation was needed to remedy the situation. Thus, in October 1984, Natividad underwent
another surgery.
On November 12, 1984, Natividad and her husband filed with the Regional Trial Court,
Branch 96, Quezon City a complaint for damages against PSI (owner of Medical City), Dr.
Ampil and Dr. Fuentes.
On February 16, 1986, pending the outcome of the above case, Natividad died. She was duly
substituted by her above-named children (the Aganas).
On March 17, 1993, the trial court rendered judgment in favor of spouses Agana finding PSI,
Dr. Ampil and Dr. Fuentes jointly and severally liable. On appeal, the Court of Appeals, in its
Decision dated September 6, 1996, affirmed the assailed judgment with modification in the
sense that the complaint against Dr. Fuentes was dismissed.
PSI, Dr. Ampil and the Aganas filed with this Court separate petitions for review on certiorari.
On January 31, 2007, the Court, through its First Division, rendered a Decision holding that
PSI is jointly and severally liable with Dr. Ampil for the following reasons: first, there is an
employer-employee relationship between Medical City and Dr. Ampil. The Court relied
on Ramos v. Court of Appeals,2 holding that for the purpose of apportioning responsibility in
medical negligence cases, an employer-employee relationship in effect exists between
hospitals and their attending and visiting physicians; second, PSIs act of publicly displaying
in the lobby of the Medical City the names and specializations of its accredited physicians,
including Dr. Ampil, estopped it from denying the existence of an employer-employee
relationship between them under the doctrine of ostensible agency or agency by
estoppel; and third, PSIs failure to supervise Dr. Ampil and its resident physicians and
nurses and to take an active step in order to remedy their negligence rendered it directly
liable under the doctrine of corporate negligence.
In its motion for reconsideration, PSI contends that the Court erred in finding it liable under
Article 2180 of the Civil Code, there being no employer-employee relationship between it
and its consultant, Dr. Ampil. PSI stressed that the Courts Decision in Ramos holding that
"an employer-employee relationship in effect exists between hospitals and their attending
and visiting physicians for the purpose of apportioning responsibility" had been reversed in a
subsequent Resolution.3 Further, PSI argues that the doctrine of ostensible agency or
agency by estoppelcannot apply because spouses Agana failed to establish one requisite

of the doctrine, i.e., that Natividad relied on the representation of the hospital in engaging
the services of Dr. Ampil. And lastly, PSI maintains that the doctrine of corporate
negligence is misplaced because the proximate cause of Natividads injury was Dr. Ampils
negligence.
The motion lacks merit.
As earlier mentioned, the First Division, in its assailed Decision, ruled that an employeremployee relationship "in effect" exists between the Medical City and Dr. Ampil.
Consequently, both are jointly and severally liable to the Aganas. This ruling proceeds from
the following ratiocination in Ramos:
We now discuss the responsibility of the hospital in this particular incident. The
unique practice (among private hospitals) of filling up specialist staff with attending
and visiting "consultants," who are allegedly not hospital employees, presents
problems in apportioning responsibility for negligence in medical malpractice
cases. However, the difficulty is only more apparent than real.
In the first place, hospitals exercise significant control in the hiring and firing
of consultants and in the conduct of their work within the hospital
premises. Doctors who apply for "consultant" slots, visiting or attending, are
required to submit proof of completion of residency, their educational qualifications;
generally, evidence of accreditation by the appropriate board (diplomate), evidence
of fellowship in most cases, and references. These requirements are carefully
scrutinized by members of the hospital administration or by a review committee set
up by the hospital who either accept or reject the application. This is particularly true
with respondent hospital.
After a physician is accepted, either as a visiting or attending consultant,
he is normally required to attend clinico-pathological conferences, conduct
bedside rounds for clerks, interns and residents, moderate grand rounds
and patient audits and perform other tasks and responsibilities, for the
privilege of being able to maintain a clinic in the hospital, and/or for the
privilege of admitting patients into the hospital. In addition to these, the
physicians performance as a specialist is generally evaluated by a peer
review committee on the basis of mortality and morbidity statistics, and
feedback from patients, nurses, interns and residents. A consultant remiss
in his duties, or a consultant who regularly falls short of the minimum
standards acceptable to the hospital or its peer review committee, is
normally politely terminated.
In other words, private hospitals hire, fire and exercise real control over their
attending and visiting "consultant" staff. While "consultants" are not, technically
employees, a point which respondent hospital asserts in denying all
responsibility for the patients condition, the control exercised, the hiring,
and the right to terminate consultants all fulfill the important hallmarks of
an employer-employee relationship, with the exception of the payment of
wages. In assessing whether such a relationship in fact exists, the control
test is determining. Accordingly, on the basis of the foregoing, we rule that
for the purpose of allocating responsibility in medical negligence cases, an
employer-employee relationship in effect exists between hospitals and their
attending and visiting physicians. This being the case, the question now arises

as to whether or not respondent hospital is solidarily liable with respondent doctors

for petitioners condition.
The basis for holding an employer solidarily responsible for the negligence of its
employee is found in Article 2180 of the Civil Code which considers a person
accountable not only for his own acts but also for those of others based on the
formers responsibility under a relationship of partia ptetas.
Clearly, in Ramos, the Court considered the peculiar relationship between a hospital and its
consultants on the bases of certain factors. One such factor is the "control test" wherein the
hospital exercises control in the hiring and firing of consultants, like Dr. Ampil, and in the
conduct of their work.
Actually, contrary to PSIs contention, the Court did not reverse its ruling in Ramos. What it
clarified was that the De Los Santos Medical Clinic did not exercise control over its
consultant, hence, there is no employer-employee relationship between them. Thus, despite
the granting of the said hospitals motion for reconsideration, the doctrine in Ramos stays,
i.e., for the purpose of allocating responsibility in medical negligence cases, an employeremployee relationship exists between hospitals and their consultants.
In the instant cases, PSI merely offered a general denial of responsibility, maintaining that
consultants, like Dr. Ampil, are "independent contractors," not employees of the hospital.
Even assuming that Dr. Ampil is not an employee of Medical City, but an independent
contractor, still the said hospital is liable to the Aganas.
In Nograles, et al. v. Capitol Medical Center, et al.,4 through Mr. Justice Antonio T. Carpio, the
Court held:
The question now is whether CMC is automatically exempt from liability considering
that Dr. Estrada is an independent contractor-physician.
In general, a hospital is not liable for the negligence of an independent contractorphysician. There is, however, an exception to this principle. The hospital may be
liable if the physician is the "ostensible" agent of the hospital. (Jones v. Philpott, 702
F. Supp. 1210 [1988]) This exception is also known as the "doctrine of apparent
authority." (Sometimes referred to as the apparent or ostensible agency theory. [King
v. Mitchell, 31 A.D.3rd 958, 819 N.Y. S.2d 169 (2006)].
xxx
The doctrine of apparent authority essentially involves two factors to determine the
liability of an independent contractor-physician.
The first factor focuses on the hospitals manifestations and is sometimes described
as an inquiry whether the hospital acted in a manner which would lead a reasonable
person to conclude that the individual who was alleged to be negligent was an
employee or agent of the hospital. (Diggs v. Novant Health, Inc., 628 S.E.2d 851
(2006) citing Hylton v. Koontz, 138 N.C. App. 629 (2000). In this regard, the
hospital need not make express representations to the patient that the
treating physician is an employee of the hospital; rather a representation
may be general and implied. (Id.)
The doctrine of apparent authority is a specie of the doctrine of estoppel. Article 1431
of the Civil Code provides that "[t]hrough estoppel, an admission or representation is
rendered conclusive upon the person making it, and cannot be denied or disproved
as against the person relying thereon." Estoppel rests on this rule: "Whether a party
has, by his own declaration, act, or omission, intentionally and deliberately led

another to believe a particular thing true, and to act upon such belief, he cannot, in
any litigation arising out of such declaration, act or omission, be permitted to falsify
it. (De Castro v. Ginete, 137 Phil. 453 [1969], citing Sec. 3, par. A, Rule 131 of the
Rules of Court. See also King v. Mitchell, 31 A.D.3rd 958, 819 N.Y.S.2d 169 [2006]).
xxx
The second factor focuses on the patients reliance. It is sometimes characterized as
an inquiry on whether the plaintiff acted in reliance upon the conduct of the hospital
or its agent, consistent with ordinary care and prudence. (Diggs v. Novant Health,
Inc.)
PSI argues that the doctrine of apparent authority cannot apply to these cases because
spouses Agana failed to establish proof of their reliance on the representation of Medical City
that Dr. Ampil is its employee.
The argument lacks merit.
Atty. Agana categorically testified that one of the reasons why he chose Dr. Ampil was
that he knew him to be a staff member of Medical City, a prominent and known
hospital.
Q

Will you tell us what transpired in your visit to Dr. Ampil?

A
Well, I saw Dr. Ampil at the Medical City, I know him to be a staff member
there, and I told him about the case of my wife and he asked me to bring my wife
over so she could be examined. Prior to that, I have known Dr. Ampil, first, he was
staying in front of our house, he was a neighbor, second, my daughter was his
student in the University of the East School of Medicine at Ramon Magsaysay; and
when my daughter opted to establish a hospital or a clinic, Dr. Ampil was one of our
consultants on how to establish that hospital. And from there, I have known that he
was a specialist when it comes to that illness.
Atty. Agcaoili
On that particular occasion, April 2, 1984, what was your reason for choosing to
contact Dr. Ampil in connection with your wifes illness?
A First, before that, I have known him to be a specialist on that part of the body as a
surgeon; second, I have known him to be a staff member of the Medical City
which is a prominent and known hospital.And third, because he is a neighbor, I
expect more than the usual medical service to be given to us, than his ordinary
patients.5
Clearly, PSI is estopped from passing the blame solely to Dr. Ampil. Its act of displaying his
name and those of the other physicians in the public directory at the lobby of the hospital
amounts to holding out to the public that it offers quality medical service through the listed
physicians. This justifies Atty. Aganas belief that Dr. Ampil was a member of the hospitals
staff. It must be stressed that under the doctrine of apparent authority, the
question in every case is whether the principal has by his voluntary act placed the
agent in such a situation that a person of ordinary prudence, conversant with
business usages and the nature of the particular business, is justified in
presuming that such agent has authority to perform the particular act in
question.6 In these cases, the circumstances yield a positive answer to the question.
The challenged Decision also anchors its ruling on the doctrine of corporate
responsibility.7 The duty of providing quality medical service is no longer the sole
prerogative and responsibility of the physician. This is because the modern hospital now

tends to organize a highly-professional medical staff whose competence and

performance need also to be monitored by the hospital commensurate with its inherent
responsibility to provide quality medical care.8 Such responsibility includes the proper
supervision of the members of its medical staff. Accordingly, the hospital has the
duty to make a reasonable effort to monitor and oversee the treatment prescribed
and administered by the physicians practicing in its premises.
Unfortunately, PSI had been remiss in its duty. It did not conduct an immediate
investigation on the reported missing gauzes to the great prejudice and agony of its
patient. Dr. Jocson, a member of PSIs medical staff, who testified on whether the hospital
conducted an investigation, was evasive, thus:
Q
We go back to the operative technique, this was signed by Dr.
Puruganan, was this submitted to the hospital?
A
Yes, sir, this was submitted to the hospital with the record of the
patient.
Q

Was the hospital immediately informed about the missing sponges?

That is the duty of the surgeon, sir.

Q
As a witness to an untoward incident in the operating room, was it not
your obligation, Dr., to also report to the hospital because you are under
the control and direction of the hospital?
A

The hospital already had the record of the two OS missing, sir.

Q
If you place yourself in the position of the hospital, how will you
recover.
A

You do not answer my question with another question.

Did the hospital do anything about the missing gauzes?

The hospital left it up to the surgeon who was doing the operation, sir.

Did the hospital investigate the surgeon who did the operation?

I am not in the position to answer that, sir.

Q
You never did hear the hospital investigating the doctors involved in
this case of those missing sponges, or did you hear something?
xxxxxx
A
I think we already made a report by just saying that two sponges were
missing, it is up to the hospital to make the move.
Atty. Agana
Precisely, I am asking you if the hospital did a move, if the hospital did a
move.
A

I cannot answer that.

Court
By that answer, would you mean to tell the Court that you were aware if
there was such a move done by the hospital?
A
I cannot answer that, your honor, because I did not have any more
follow-up of the case that happened until now.9
The above testimony obviously shows Dr. Jocsons lack of concern for the patients. Such
conduct is reflective of the hospitals manner of supervision. Not only did PSI
breach its duty to oversee or supervise all persons who practice medicine within

its walls, it also failed to take an active step in fixing the negligence
committed.This renders PSI, not only vicariously liable for the negligence of Dr. Ampil under
Article 2180 of the Civil Code, but also directly liable for its own negligence under Article
2176.
Moreover, there is merit in the trial courts finding that the failure of PSI to conduct an
investigation "established PSIs part in the dark conspiracy of silence and
concealment about the gauzes." The following testimony of Atty. Agana supports such
findings, thus:
Q
You said you relied on the promise of Dr. Ampil and despite the promise you were
not able to obtain the said record. Did you go back to the record custodian?
A

I did not because I was talking to Dr. Ampil. He promised me.

After your talk to Dr. Ampil, you went to the record custodian?

A
I went to the record custodian to get the clinical record of my wife, and
I was given a portion of the records consisting of the findings, among them,
the entries of the dates, but not the operating procedure and operative
report.10
In sum, we find no merit in the motion for reconsideration.
WHEREFORE, we DENY PSIs motion for reconsideration with finality.
SO ORDERED.

G.R. No. 150920 November 25, 2005

CHILD LEARNING CENTER, INC. and SPOUSES EDGARDO L. LIMON and SYLVIA S.
LIMON, Petitioners,
vs.
TIMOTHY TAGARIO, assisted by his parents BASILIO TAGORIO and HERMINIA
TAGORIO, Respondents.
DECISION
AZCUNA, J.:
This petition started with a tort case filed with the Regional Trial Court of Makati by Timothy
Tagorio and his parents, Basilio R. Tagorio and Herminia Tagorio, docketed as Civil Case No.
91-1389. The complaint1 alleged that during the school year 1990-1991, Timothy was a
Grade IV student at Marymount School, an academic institution operated and maintained by
Child Learning Center, Inc. (CLC). In the afternoon of March 5, 1991, between 1 and 2 p.m.,
Timothy entered the boys comfort room at the third floor of the Marymount building to
answer the call of nature. He, however, found himself locked inside and unable to get out.
Timothy started to panic and so he banged and kicked the door and yelled several times for
help. When no help arrived he decided to open the window to call for help. In the process of
opening the window, Timothy went right through and fell down three stories. Timothy was
hospitalized and given medical treatment for serious multiple physical injuries.
An action under Article 2176 of the Civil Code was filed by respondents against the CLC, the
members of its Board of Directors, namely Spouses Edgardo and Sylvia Limon, Alfonso Cruz,
Carmelo Narciso and Luningning Salvador, and the Administrative Officer of Marymount
School, Ricardo Pilao. In its defense,2 CLC maintained that there was nothing defective about
the locking mechanism of the door and that the fall of Timothy was not due to its fault or
negligence. CLC further maintained that it had exercised the due care and diligence of a
good father of a family to ensure the safety, well-being and convenience of its students.
After trial, the court a quo found in favor of respondents and ordered petitioners CLC and
Spouses Limon to pay respondents, jointly and severally, P200,253.12 as actual and
compensatory damages, P200,000 as moral damages, P50,000 as exemplary
damages, P100,000 as attorneys fees and the costs of the suit. The trial court disregarded
the corporate fiction of CLC and held the Spouses Limon personally liable because they were
the ones who actually managed the affairs of the CLC.
Petitioners CLC and the Spouses Limon appealed the decision to the Court of Appeals.
On September 28, 2001, the Court of Appeals3 affirmed the decision in toto. Petitioners
elevated the case to this Court under Rule 45 of the Rules of Court, after their motion for
reconsideration was denied by Resolution of November 23, 2001. 4
Petitioners question several factual findings of the trial court, which were affirmed by the
Court of Appeals, namely:5
1. That respondent was allegedly trapped inside the boys comfort room located at the third
floor of the school building on March 5, 1991;
2. That respondent allegedly banged and kicked the door of said comfort room several times
to attract attention and that he allegedly yelled thereat for help which never came;
3. That respondent was allegedly forced to open the window of said comfort room to seek
help;

4. That the lock set installed at the boys comfort room located in the third floor of the
school building on March 5, 1991 was allegedly defective and that the same lock set was
involved in previous incidents of alleged malfunctioning;
5. That petitioner Child Learning Center, Inc. allegedly failed to install iron grills in the
window of the boys comfort room at the third floor of the school building;
6. That petitioner Child Learning Center, Inc. allegedly failed to exercise the due care of a
good father of a family in the selection and supervision of its employees;
7. That the proximate cause of respondents accident was allegedly not due to his own
contributory negligence;
8. That there was an alleged basis to apply the legal principle of "piercing the veil of
corporate entity" in resolving the issue of alleged liability of petitioners Edgardo L. Limon
and Sylvia S. Limon;
9. That there was alleged basis for petitioners to pay respondent actual, moral and
exemplary damages, plus attorneys fees;
10. That there was an alleged basis in not awarding petitioners prayer for moral and
exemplary damages, including attorneys fees.
Generally, factual findings of the trial court, affirmed by the Court of Appeals, are final and
conclusive and may not be reviewed on appeal. The established exceptions are: (1) when
the inference made is manifestly mistaken, absurd or impossible; (2) when there is grave
abuse of discretion; (3) when the findings are grounded entirely on speculations, surmises or
conjectures; (4) when the judgment of the Court of Appeals is based on misapprehension of
facts; (5) when the findings of fact are conflicting; (6) when the Court of Appeals, in making
its findings, went beyond the issues of the case and the same is contrary to the admissions
of both appellant and appellee; (7) when the findings of fact are conclusions without citation
of specific evidence on which they are based; (8) when the Court of Appeals manifestly
overlooked certain relevant facts not disputed by the parties and which, if properly
considered, would justify a different conclusion; and (9) when the findings of fact of the
Court of Appeals are premised on the absence of evidence and are contradicted by the
evidence on record.6
On the basis of the records of this case, this Court finds no justification to reverse the factual
findings and consider this case as an exception to the general rule.
In every tort case filed under Article 2176 of the Civil Code, plaintiff has to prove by a
preponderance of evidence: (1) the damages suffered by the plaintiff; (2) the fault or
negligence of the defendant or some other person for whose act he must respond; and (3)
the connection of cause and effect between the fault or negligence and the damages
incurred.7
Fault, in general, signifies a voluntary act or omission which causes damage to the right of
another giving rise to an obligation on the part of the actor to repair such damage.
Negligence is the failure to observe for the protection of the interest of another person that
degree of care, precaution and vigilance which the circumstances justly demand. Fault
requires the execution of a positive act which causes damage to another while negligence
consists of the omission to do acts which result in damage to another. 8
In this tort case, respondents contend that CLC failed to provide precautionary measures to
avoid harm and injury to its students in two instances: (1) failure to fix a defective door knob
despite having been notified of the problem; and (2) failure to install safety grills on the
window where Timothy fell from.

The trial court found that the lock was defective on March 5, 1991: 9
The door knob was defective. After the incident of March 5, 1991, said door knob was taken
off the door of the toilet where Timothy was in. The architect who testified during the trial
declared that although there were standard specifications for door knobs for comfort
room[s], and he designed them according to that requirement, he did not investigate
whether the door knob specified in his plans during the construction [was] actually put in
place. This is so because he did not verify whether the door knob he specified w[as] actually
put in place at the particular comfort room where Timothy was barred from getting outside.
(TSN, pp. 19-20, December 8, 1994).
The Court of Appeals held that there was no reason to disturb the factual assessment: 10
After having perused the records, We fail to see any indication of whim or arbitrariness on
the part of the trial magistrate in his assessment of the facts of the case. That said, We
deem it not to be within Our business to recast the factual conclusions reached by the court
below.
Petitioners would make much of the point that no direct evidence was presented to prove
that the door knob was indeed defective on the date in question.
The fact, however, that Timothy fell out through the window shows that the door could not
be opened from the inside. That sufficiently points to the fact that something was wrong
with the door, if not the door knob, under the principle of res ipsa loquitor. The doctrine
of res ipsa loquitor applies where (1) the accident was of such character as to warrant an
inference that it would not have happened except for the defendants negligence; (2) the
accident must have been caused by an agency or instrumentality within the exclusive
management or control of the person charged with the negligence complained of; and (3)
the accident must not have been due to any voluntary action or contribution on the part of
the person injured.11 Petitioners are clearly answerable for failure to see to it that the doors
of their school toilets are at all times in working condition. The fact that a student had to go
through the window, instead of the door, shows that something was wrong with the door.
As to the absence of grills on the window, petitioners contend that there was no such
requirement under the Building Code. Nevertheless, the fact is that such window, as
petitioners themselves point out, was approximately 1.5 meters from the floor, so that it was
within reach of a student who finds the regular exit, the door, not functioning. Petitioners,
with the due diligence of a good father of the family, should have anticipated that a student,
locked in the toilet by a non-working door, would attempt to use the window to call for help
or even to get out. Considering all the circumstances, therefore, there is sufficient basis to
sustain a finding of liability on petitioners part.
Petitioners argument that CLC exercised the due diligence of a good father of a family in the
selection and supervision of its employees is not decisive. Due diligence in the selection and
supervision of employees is applicable where the employer is being held responsible for the
acts or omissions of others under Article 2180 of the Civil Code. 12 In this case, CLCs liability
is under Article 2176 of the Civil Code, premised on the fact of its own negligence in not
ensuring that all its doors are properly maintained.
Our pronouncement that Timothy climbed out of the window because he could not get out
using the door, negates petitioners other contention that the proximate cause of the
accident was Timothys own negligence. The injuries he sustained from the fall were the
product of a natural and continuous sequence, unbroken by any intervening cause, that
originated from CLCs own negligence.

We, however, agree with petitioners that there was no basis to pierce CLCs separate
corporate personality. To disregard the corporate existence, the plaintiff must prove: (1)
Control by the individual owners, not mere majority or complete stock ownership, resulting
in complete domination not only of finances but of policy and business practice in respect to
a transaction so that the corporate entity as to this transaction had at the time no separate
mind, will or existence of its own; (2) such control must have been used by the defendant to
commit fraud or wrong, to perpetuate the violation of a statutory or other positive legal
duty, or a dishonest and unjust act in contravention of the plaintiffs legal right; and (3) the
control and breach of duty must proximately cause the injury or unjust loss complained of.
The absence of these elements prevents piercing the corporate veil. 13 The evidence on
record fails to show that these elements are present, especially given the fact that plaintiffs
complaint had pleaded that CLC is a corporation duly organized and existing under the laws
of the Philippines.
On 9th and 10th points raised concerning the award of damages, the resolution would rest
on factual determinations by the trial court, affirmed by the Court of Appeals, and no legal
issue warrants our intervention.
WHEREFORE, the petition is partly granted and the Decision and Resolution of the Court of
Appeals in CA-G.R. CV No. 50961 dated September 28, 2001 and November 23, 2001,
respectively, are MODIFIED in that petitioners Spouses Edgardo and Sylvia Limon are
absolved from personal liability. The Decision and Resolution areAFFIRMED in all other
respects. No pronouncement as to costs.

G.R. No. L-30896 April 28, 1983

JOSE O. SIA, petitioner,
vs.
THE PEOPLE OF THE PHILIPPINES, respondent.
DE CASTRO, J.:
Petition for review of the decision of the Court of Appeals affirming the decision of the Court
of First Instance of Manila convicting the appellant of estafa, under an information which
reads:
That in, about or during the period comprised' between July 24, 1963 and
December 31, 1963, both dates inclusive, in the City of Manila, Philippines,
the said accused did then and there willfully, unlawfully and feloniously
defraud the Continental Bank, a banking institution duly organized and doing
business in the City of Manila, in the following manner, to wit: the said
accused, in his capacity as president and general manager of the Metal
Manufacturing of the Philippines, Inc. (MEMAP) and on behalf of said company,
obtained delivery of 150 M/T Cold Rolled Steel Sheets valued at P 71,023.60
under a trust receipt agreement under L/C No. 63/109, which cold rolled steel
sheets were consigned to the Continental Bank, under the express obligation
on the part of said accused of holding the said steel sheets in trust and selling
them and turning over the proceeds of the sale to the Continental Bank; but
the said accused, once in possession of the said goods, far from complying
with his aforesaid obligation and despite demands made upon him to do so,
with intent to defraud, failed and refused to return the said cold rolled sheets
or account for the proceeds thereof, if sold, which the said accused willfully,
unlawfully and feloniously misappropriated, misapplied and converted to his
own personal use and benefit, to the damage and prejudice of the said
Continental Bank in the total amount of P146,818.68, that is the balance
including the interest after deducting the sum of P28,736.47 deposited by the
said accused with the bank as marginal deposit and forfeited by the said from
the value of the said goods, in the said sum of P71,023.60. (Original Records,
p. 1).
In reviewing the evidence, the Court of Appeals came up with the following findings of facts
which the Solicitor General alleges should be conclusive upon this Court:
There is no debate on certain antecedents: Accused Jose 0. Sia sometime prior
to 24 May, 1963, was General Manager of the Metal Manufacturing Company
of the Philippines, Inc. engaged in the manufacture of steel office equipment;
on 31 May, 1963, because his company was in need of raw materials to be
imported from abroad, he applied for a letter of credit to import steel sheets
from Mitsui Bussan Kaisha, Ltd. of Tokyo, Japan, the application being directed
to the Continental Bank, herein complainant, Exhibit B and his application
having been approved, the letter of credit was opened on 5 June, 1963 in the
amount of $18,300, Exhibit D; and the goods arrived sometime in July, 1963
according to accused himself, tsn. II:7; now from here on there is some debate
on the evidence; according to Complainant Bank, there was permitted delivery
of the steel sheets only upon execution of a trust receipt, Exhibit A; while
according to the accused, the goods were delivered to him sometime before

he executed that trust receipt in fact they had already been converted into
steel office equipment by the time he signed said trust receipt, tsn. II:8; but
there is no question - and this is not debated - that the bill of exchange issued
for the purpose of collecting the unpaid account thereon having fallen due
(see Exh. B) neither accused nor his company having made payment thereon
notwithstanding demands, Exh. C and C-1, dated 17 and 27 December, 1963,
and the accounts having reached the sum in pesos of P46,818.68 after
deducting his deposit valued at P28,736.47; that was the reason why upon
complaint by Continental Bank, the Fiscal filed the information after
preliminary investigation as has been said on 22 October, 1964. (Rollo [CA],
pp. 103- 104).
The first issue raised, which in effect combines the first three errors assigned, is whether
petitioner Jose O. Sia, having only acted for and in behalf of the Metal Manufacturing
Company of the Philippines (Metal Company, for short) as President thereof in dealing with
the complainant, the Continental Bank, (Bank for short) he may be liable for the crime
charged.
In discussing this question, petitioner proceeds, in the meantime, on the assumption that
the acts imputed to him would constitute the crime of estafa, which he also disputes, but
seeks to avoid liability on his theory that the Bank knew all along that petitioner was dealing
with him only as an officer of the Metal Company which was the true and actual applicant for
the letter of credit (Exhibit B) and which, accordingly, assumed sole obligation under the
trust receipt (Exhibit A). In disputing the theory of petitioner, the Solicitor General relies on
the general principle that when a corporation commits an act which would constitute a
punishable offense under the law, it is the responsible officers thereof, acting for the
corporation, who would be punished for the crime, The Court of Appeals has subscribed to
this view when it quoted approvingly from the decision of the trial court the following:
A corporation is an artificial person, an abstract being. If the defense theory is
followed unscrupulously legions would form corporations to commit swindle
right and left where nobody could be convicted, for it would be futile and
ridiculous to convict an abstract being that can not be pinched and confined in
jail like a natural, living person, hence the result of the defense theory would
be hopeless chose in business and finance. It is completely untenable. (Rollo
[CA], p. 108.)
The above-quoted observation of the trial court would seem to be merely restating a general
principle that for crimes committed by a corporation, the responsible officers thereof would
personally bear the criminal liability. (People vs. Tan Boon Kong, 54 Phil. 607. See also
Tolentino, Commercial Laws of the Philippines, p. 625, citing cases.)
The case cited by the Court of Appeals in support of its stand-Tan Boon Kong case, supramay however not be squarely applicable to the instant case in that the corporation was
directly required by law to do an act in a given manner, and the same law makes the person
who fails to perform the act in the prescribed manner expressly liable criminally. The
performance of the act is an obligation directly imposed by the law on the corporation. Since
it is a responsible officer or officers of the corporation who actually perform the act for the
corporation, they must of necessity be the ones to assume the criminal liability; otherwise
this liability as created by the law would be illusory, and the deterrent effect of the law,
negated.

In the present case, a distinction is to be found with the Tan Boon Kong case in that the act
alleged to be a crime is not in the performance of an act directly ordained by law to be
performed by the corporation. The act is imposed by agreement of parties, as a practice
observed in the usual pursuit of a business or a commercial transaction. The offense may
arise, if at all, from the peculiar terms and condition agreed upon by the parties to the
transaction, not by direct provision of the law. The intention of the parties, therefore, is a
factor determinant of whether a crime was committed or whether a civil obligation alone
intended by the parties. With this explanation, the distinction adverted to between the Tan
Boon Kong case and the case at bar should come out clear and meaningful. In the absence
of an express provision of law making the petitioner liable for the criminal offense committed
by the corporation of which he is a president as in fact there is no such provisions in the
Revised Penal Code under which petitioner is being prosecuted, the existence of a criminal
liability on his part may not be said to be beyond any doubt. In all criminal prosecutions, the
existence of criminal liability for which the accused is made answerable must be clear and
certain. The maxim that all doubts must be resolved in favor of the accused is always of
compelling force in the prosecution of offenses. This Court has thus far not ruled on the
criminal liability of an officer of a corporation signing in behalf of said corporation a trust
receipt of the same nature as that involved herein. In the case of Samo vs. People, L-1760304, May 31, 1962, the accused was not clearly shown to be acting other than in his own
behalf, not in behalf of a corporation.
The next question is whether the violation of a trust receipt constitutes estafa under Art. 315
(1-[2]) of the Revised Penal Code, as also raised by the petitioner. We now entertain grave
doubts, in the light of the promulgation of P.D. 115 providing for the regulation of trust
receipts transaction, which is a very comprehensive piece of legislation, and includes an
express provision that if the violation or offense is committed by a corporation, partnership,
association or other juridical entities the penalty provided for in this Decree shall be imposed
upon the directors, officers, employees or other officials or persons therein responsible for
the offense, without prejudice to civil liabilities arising from the criminal offense. The
question that suggests itself is, therefore, whether the provisions of the Revised Penal Code,
Article 315, par. 1 (b) are not adequate to justify the punishment of the act made punishable
by P.D. 115, that the necessity was felt for the promulgation of the decree. To answer this
question, it is imperative to make an indepth analysis of the conditions usually embodied in
a trust receipt to best their legal sufficiency to constitute the basis for holding the violation
of said conditions as estafa under Article 315 of the Revised Penal Code which P.D. 115 now
seeks to punish expressly.
As executed, the trust receipt in question reads:
I/WE HEREBY AGREE TO HOLD SAID GOODS IN TRUST FOR THE SAID BANK as
its property with liberty to sell the same for its account but without authority
to make any other disposition whatsoever of the said goods or any part
thereof (or the proceeds thereof) either way of conditional sale, pledge or
otherwise;
In case of sale I/we further agree to hand the proceeds as soon as received to
the BANK to apply against the relative acceptance (as described above) and
for the payment of any other indebtedness of mine/ours to CONTINENTAL
BANK. (Original Records, p. 108)
One view is to consider the transaction as merely that of a security of a loan, and that the
trust element is but and inherent feature of the security aspect of the arrangement where

the goods are placed in the possession of the "entrustee," to use the term used in P.D. 115,
violation of the element of trust not being intended to be in the same concept as how it is
understood in the criminal sense. The other view is that the bank as the owner and
"entrustor" delivers the goods to the "entrustee, " with the authority to sell the goods, but
with the obligation to give the proceeds to the "entrustor" or return the goods themselves if
not sold, a trust being thus created in the full sense as contemplated by Art. 315, par. 1 (b).
We consider the view that the trust receipt arrangement gives rise only to civil liability as
the more feasible, before the promulgation of P.D. 115. The transaction being contractual,
the intent of the parties should govern. Since the trust receipt has, by its nature, to be
executed upon the arrival of the goods imported, and acquires legal standing as such receipt
only upon acceptance by the "entrustee," the trust receipt transaction itself, the antecedent
acts consisting of the application of the L/C, the approval of the L/C and the making of the
marginal deposit and the effective importation of the goods, all through the efforts of the
importer who has to find his supplier, arrange for the payment and shipment of the imported
goods-all these circumstances would negate any intent of subjecting the importer to criminal
prosecution, which could possibly give rise to a case of imprisonment for non-payment of a
debt. The parties, therefore, are deemed to have consciously entered into a purely
commercial transaction that could give rise only to civil liability, never to subject the
"entrustee" to criminal prosecution. Unlike, for instance, when several pieces of jewelry are
received by a person from the owner for sale on commission, and the former
misappropriates for his personal use and benefit, either the jewelries or the proceeds of the
sale, instead of returning them to the owner as is his obligation, the bank is not in the same
concept as the jewelry owner with full power of disposition of the goods, which the bank
does not have, for the bank has previously extended a loan which the L/C represents to the
importer, and by that loan, the importer should be the real owner of the goods. If under the
trust receipt the bank is made to appear as the owner, it was but an artificial expedient,
more of a legal fiction than fact, for if it were really so, it could dispose of the goods in any
manner it wants, which it cannot do, just to give consistency with the purpose of the trust
receipt of giving a stronger security for the loan obtained by the importer. To consider the
bank as the true owner from the inception of the transaction would be to disregard the loan
feature thereof, a feature totally absent in the case of the transaction between the jewelowner and his agent.
Consequently, if only from the fact that the trust receipt transaction is susceptible to two
reasonable interpretation, one as giving rise only to civil liability for the violation of the
condition thereof, and the other, as generating also criminal liability, the former should be
adopted as more favorable to the supposed offender. (Duran vs. CA, L-39758, May 7, 1976,
71 SCRA 68; People vs. Parayno, L-24804, July 5, 1968, 24 SCRA 3; People vs. Abendan, L1481, January 28,1949,82 Phil. 711; People vs. Bautista, L-1502, May 24, 1948, 81 Phil. 78;
People vs. Abana, L-39, February 1, 1946, 76 Phil. 1.)
There is, moreover, one circumstance appearing on record, the significance of which should
be properly evaluated. As stated in petitioner's brief (page 2), not denied by the People,
"before the Continental Bank approved the application for a letter of credit (Exhibit 'D'),
subsequently covered by the trust receipt, the Continental Bank examined the financial
capabilities of the applicant, Metal Manufacturing Company of the Philippines because that
was the bank's standard procedure (Testimony of Mr. Ernesto Garlit, Asst. Manager of the
Foreign Department, Continental Bank, t.s.n., August 30, 1965). The Continental Bank did
not examine the financial capabilities of herein petitioner, Jose O. Sia, in connection with the
same letter of credit. (Ibid). " From this fact, it would appear as positively established that

the intention of the parties in entering into the "trust receipt" agreement is merely to afford
a stronger security for the loan evidenced by the letter of credit, may be not as an ordinary
pledge as observed in P.N.B. vs. Viuda e Hijos de Angel Jose, et al., 63 Phil. 814, citing In re
Dunlap C (206 Fed. 726) but neither as a transaction falling under Article 315-1 (b) of the
Revised Penal Code giving rise to criminal liability, as previously explained and
demonstrated.
It is worthy of note that the civil liability imposed by the trust receipt is exclusively on the
Metal Company. Speaking of such liability alone, as one arising from the contract, as
distinguished from the civil liability arising out of a crime, the petitioner was never intended
to be equally liable as the corporation. Without being made so liable personally as the
corporation is, there would then be no basis for holding him criminally liable, for any
violation of the trust receipt. This is made clearly so upon consideration of the fact that in
the violation of the trust agreement and in the absence of positive evidence to the contrary,
only the corporation benefited, not the petitioner personally, yet, the allegation of the
information is to effect that the misappropriation or conversion was for the personal use and
benefit of the petitioner, with respect to which there is variance between the allegation and
the evidence.
It is also worthy of note that while the trust receipt speaks of authority to sell, the fact is
undisputed that the imported goods were to be manufactured into finished products first
before they could be sold, as the Bank had full knowledge of. This fact is, however, not
embodied in the trust agreement, thus impressing on the trust receipt vagueness and
ambiguity which should not be the basis for criminal prosecution, in the event of a violation
of the terms of the trust receipt. Again, P.D. 115 has express provision relative to the
"manufacture or process of the good with the purpose of ultimate sale," as a distinct
condition from that of "to sell the goods or procure their sale" (Section 4, (1). Note that what
is embodied in the receipt in question is the sale of imported goods, the manufacture thereof
not having been mentioned. The requirement in criminal prosecution, that there must be
strict harmony, not variance, between the allegation and the evidence, may therefore, not
be said to have been satisfied in the instance case.
FOR ALL THE FOREGOING, We reverse the decision of the Court of Appeals and hereby
acquit the petitioner, with costs de oficio.
SO ORDERED.

G.R. No. 170891

November 24, 2009

MANUEL C. ESPIRITU, JR., AUDIE LLONA, FREIDA F. ESPIRITU, CARLO F. ESPIRITU,

RAFAEL F. ESPIRITU, ROLANDO M. MIRABUNA, HERMILYN A. MIRABUNA, KIM
ROLAND A. MIRABUNA, KAYE ANN A. MIRABUNA, KEN RYAN A. MIRABUNA, JUANITO
P. DE CASTRO, GERONIMA A. ALMONITE and MANUEL C. DEE, who are the officers
and directors of BICOL GAS REFILLING PLANT CORPORATION, Petitioners,
vs.
PETRON CORPORATION and CARMEN J. DOLOIRAS, doing business under the name
"KRISTINA PATRICIA ENTERPRISES," Respondents.
DECISION
ABAD, J.:
This case is about the offense or offenses that arise from the reloading of the liquefied
petroleum gas cylinder container of one brand with the liquefied petroleum gas of another
brand.
The Facts and the Case
Respondent Petron Corporation (Petron) sold and distributed liquefied petroleum gas (LPG) in
cylinder tanks that carried its trademark "Gasul."1 Respondent Carmen J. Doloiras owned and
operated Kristina Patricia Enterprises (KPE), the exclusive distributor of Gasul LPGs in the
whole of Sorsogon.2 Jose Nelson Doloiras (Jose) served as KPEs manager.
Bicol Gas Refilling Plant Corporation (Bicol Gas) was also in the business of selling and
distributing LPGs in Sorsogon but theirs carried the trademark "Bicol Savers Gas." Petitioner
Audie Llona managed Bicol Gas.
In the course of trade and competition, any given distributor of LPGs at times acquired
possession of LPG cylinder tanks belonging to other distributors operating in the same area.
They called these "captured cylinders." According to Jose, KPEs manager, in April 2001 Bicol
Gas agreed with KPE for the swapping of "captured cylinders" since one distributor could not
refill captured cylinders with its own brand of LPG. At one time, in the course of
implementing this arrangement, KPEs Jose visited the Bicol Gas refilling plant. While there,
he noticed several Gasul tanks in Bicol Gas possession. He requested a swap but Audie
Llona of Bicol Gas replied that he first needed to ask the permission of the Bicol Gas owners.
That permission was given and they had a swap involving around 30 Gasul tanks held by
Bicol Gas in exchange for assorted tanks held by KPE.
KPEs Jose noticed, however, that Bicol Gas still had a number of Gasul tanks in its yard. He
offered to make a swap for these but Llona declined, saying the Bicol Gas owners wanted to
send those tanks to Batangas. Later Bicol Gas told Jose that it had no more Gasul tanks left
in its possession. Jose observed on almost a daily basis, however, that Bicol Gas trucks
which plied the streets of the province carried a load of Gasul tanks. He noted that KPEs
volume of sales dropped significantly from June to July 2001.
On August 4, 2001 KPEs Jose saw a particular Bicol Gas truck on the Maharlika Highway.
While the truck carried mostly Bicol Savers LPG tanks, it had on it one unsealed 50-kg Gasul
tank and one 50-kg Shellane tank. Jose followed the truck and when it stopped at a store, he
asked the driver, Jun Leorena, and the Bicol Gas sales representative, Jerome Misal, about
the Gasul tank in their truck. They said it was empty but, when Jose turned open its valve,
he noted that it was not. Misal and Leorena then admitted that the Gasul and Shellane tanks
on their truck belonged to a customer who had them filled up by Bicol Gas. Misal then
mentioned that his manager was a certain Rolly Mirabena.

Because of the above incident, KPE filed a complaint 3 for violations of Republic Act (R.A.) 623
(illegally filling up registered cylinder tanks), as amended, and Sections 155 (infringement of
trade marks) and 169.1 (unfair competition) of the Intellectual Property Code (R.A. 8293).
The complaint charged the following: Jerome Misal, Jun Leorena, Rolly Mirabena, Audie Llona,
and several John and Jane Does, described as the directors, officers, and stockholders of
Bicol Gas. These directors, officers, and stockholders were eventually identified during the
preliminary investigation.
Subsequently, the provincial prosecutor ruled that there was probable cause only for
violation of R.A. 623 (unlawfully filling up registered tanks) and that only the four Bicol Gas
employees, Mirabena, Misal, Leorena, and petitioner Llona, could be charged. The charge
against the other petitioners who were the stockholders and directors of the company was
dismissed.
Dissatisfied, Petron and KPE filed a petition for review with the Office of the Regional State
Prosecutor, Region V, which initially denied the petition but partially granted it on motion for
reconsideration. The Office of the Regional State Prosecutor ordered the filing of additional
informations against the four employees of Bicol Gas for unfair competition. It ruled,
however, that no case for trademark infringement was present. The Secretary of Justice
denied the appeal of Petron and KPE and their motion for reconsideration.
Undaunted, Petron and KPE filed a special civil action for certiorari with the Court of
Appeals4 but the Bicol Gas employees and stockholders concerned opposed it, assailing the
inadequacy in its certificate of non-forum shopping, given that only Atty. Joel Angelo C. Cruz
signed it on behalf of Petron. In its Decision5 dated October 17, 2005, the Court of Appeals
ruled, however, that Atty. Cruzs certification constituted sufficient compliance. As to the
substantive aspect of the case, the Court of Appeals reversed the Secretary of Justices
ruling. It held that unfair competition does not necessarily absorb trademark infringement.
Consequently, the court ordered the filing of additional charges of trademark infringement
against the concerned Bicol Gas employees as well.
Since the Bicol Gas employees presumably acted under the direct order and control of its
owners, the Court of Appeals also ordered the inclusion of the stockholders of Bicol Gas in
the various charges, bringing to 16 the number of persons to be charged, now including
petitioners Manuel C. Espiritu, Jr., Freida F. Espiritu, Carlo F. Espiritu, Rafael F. Espiritu,
Rolando M. Mirabuna, Hermilyn A. Mirabuna, Kim Roland A. Mirabuna, Kaye Ann A. Mirabuna,
Ken Ryan A. Mirabuna, Juanito P. de Castro, Geronima A. Almonite, and Manuel C. Dee
(together with Audie Llona), collectively, petitioners Espiritu, et al. The court denied the
motion for reconsideration of these employees and stockholders in its Resolution dated
January 6, 2006, hence, the present petition for review6before this Court.
The Issues Presented
The petition presents the following issues:
1. Whether or not the certificate of non-forum shopping that accompanied the
petition filed with the Court of Appeals, signed only by Atty. Cruz on behalf of Petron,
complied with what the rules require;
2. Whether or not the facts of the case warranted the filing of charges against the
Bicol Gas people for:
a) Filling up the LPG tanks registered to another manufacturer without the
latters consent in violation of R.A. 623, as amended;

b) Trademark infringement consisting in Bicol Gas use of a trademark that is

confusingly similar to Petrons registered "Gasul" trademark in violation of
section 155 also of R.A. 8293; and
c) Unfair competition consisting in passing off Bicol Gas-produced LPGs for
Petron-produced Gasul LPG in violation of Section 168.3 of R.A. 8293.
The Courts Rulings
First. Petitioners Espiritu, et al. point out that the certificate of non-forum shopping that
respondents KPE and Petron attached to the petition they filed with the Court of Appeals was
inadequate, having been signed only by Petron, through Atty. Cruz.
But, while procedural requirements such as that of submittal of a certificate of non-forum
shopping cannot be totally disregarded, they may be deemed substantially complied with
under justifiable circumstances.7 One of these circumstances is where the petitioners filed a
collective action in which they share a common interest in its subject matter or raise a
common cause of action. In such a case, the certification by one of the petitioners may be
deemed sufficient.8
Here, KPE and Petron shared a common cause of action against petitioners Espiritu, et al.,
namely, the violation of their proprietary rights with respect to the use of Gasul tanks and
trademark. Furthermore, Atty. Cruz said in his certification that he was executing it "for and
on behalf of the Corporation, and co-petitioner Carmen J. Doloiras." 9Thus, the object of the
requirement to ensure that a party takes no recourse to multiple forums was
substantially achieved. Besides, the failure of KPE to sign the certificate of non-forum
shopping does not render the petition defective with respect to Petron which signed it
through Atty. Cruz.10 The Court of Appeals, therefore, acted correctly in giving due course to
the petition before it.
Second. The Court of Appeals held that under the facts of the case, there is probable cause
that petitioners Espiritu, et al. committed all three crimes: (a) illegally filling up an LPG tank
registered to Petron without the latters consent in violation of R.A. 623, as amended; (b)
trademark infringement which consists in Bicol Gas use of a trademark that is confusingly
similar to Petrons registered "Gasul" trademark in violation of Section 155 of R.A. 8293; and
(c) unfair competition which consists in petitioners Espiritu, et al. passing off Bicol Gasproduced LPGs for Petron-produced Gasul LPG in violation of Section 168.3 of R.A. 8293.
Here, the complaint adduced at the preliminary investigation shows that the one 50-kg
Petron Gasul LPG tank found on the Bicol Gas truck "belonged to [a Bicol Gas] customer
who had the same filled up by BICOL GAS."11 In other words, the customer had that one
Gasul LPG tank brought to Bicol Gas for refilling and the latter obliged.
R.A. 623, as amended,12 punishes any person who, without the written consent of the
manufacturer or seller of gases contained in duly registered steel cylinders or tanks, fills the
steel cylinder or tank, for the purpose of sale, disposal or trafficking, other than the purpose
for which the manufacturer or seller registered the same. This was what happened in this
case, assuming the allegations of KPEs manager to be true. Bicol Gas employees filled up
with their firms gas the tank registered to Petron and bearing its mark without the latters
written authority. Consequently, they may be prosecuted for that offense.
But, as for the crime of trademark infringement, Section 155 of R.A. 8293 (in relation to
Section 17013 ) provides that it is committed by any person who shall, without the consent of
the owner of the registered mark:

1. Use in commerce any reproduction, counterfeit, copy or colorable imitation of a

registered mark or the same container or a dominant feature thereof in connection
with the sale, offering for sale, distribution, advertising of any goods or services
including other preparatory steps necessary to carry out the sale of any goods or
services on or in connection with which such use is likely to cause confusion, or to
cause mistake, or to deceive; or
2. Reproduce, counterfeit, copy or colorably imitate a registered mark or a dominant
feature thereof and apply such reproduction, counterfeit, copy or colorable imitation
to labels, signs, prints, packages, wrappers, receptacles or advertisements intended
to be used in commerce upon or in connection with the sale, offering for sale,
distribution, or advertising of goods or services on or in connection with which such
use is likely to cause confusion, or to cause mistake, or to deceive.
KPE and Petron have to show that the alleged infringer, the responsible officers and staff of
Bicol Gas, used Petrons Gasul trademark or a confusingly similar trademark on Bicol Gas
tanks with intent to deceive the public and defraud its competitor as to what it is
selling.14 Examples of this would be the acts of an underground shoe manufacturer in
Malabon producing "Nike" branded rubber shoes or the acts of a local shirt company with no
connection to La Coste, producing and selling shirts that bear the stitched logos of an openjawed alligator.
Here, however, the allegations in the complaint do not show that Bicol Gas painted on its
own tanks Petrons Gasul trademark or a confusingly similar version of the same to deceive
its customers and cheat Petron. Indeed, in this case, the one tank bearing the mark of Petron
Gasul found in a truck full of Bicol Gas tanks was a genuine Petron Gasul tank, more of a
captured cylinder belonging to competition. No proof has been shown that Bicol Gas has
gone into the business of distributing imitation Petron Gasul LPGs.
As to the charge of unfair competition, Section 168.3 (a) of R.A. 8293 (also in relation to
Section 170) describes the acts constituting the offense as follows:
168.3. In particular, and without in any way limiting the scope of protection against unfair
competition, the following shall be deemed guilty of unfair competition:
(a) Any person, who is selling his goods and gives them the general appearance of goods of
another manufacturer or dealer, either as to the goods themselves or in the wrapping of the
packages in which they are contained, or the devices or words thereon, or in any other
feature of their appearance, which would be likely to influence purchasers to believe that the
goods offered are those of a manufacturer or dealer, other than the actual manufacturer or
dealer, or who otherwise clothes the goods with such appearance as shall deceive the public
and defraud another of his legitimate trade, or any subsequent vendor of such goods or any
agent of any vendor engaged in selling such goods with a like purpose;
Essentially, what the law punishes is the act of giving ones goods the general appearance of
the goods of another, which would likely mislead the buyer into believing that such goods
belong to the latter. Examples of this would be the act of manufacturing or selling shirts
bearing the logo of an alligator, similar in design to the open-jawed alligator in La Coste
shirts, except that the jaw of the alligator in the former is closed, or the act of a producer or
seller of tea bags with red tags showing the shadow of a black dog when his competitor is
producing or selling popular tea bags with red tags showing the shadow of a black cat.
Here, there is no showing that Bicol Gas has been giving its LPG tanks the general
appearance of the tanks of Petrons Gasul. As already stated, the truckfull of Bicol Gas tanks

that the KPE manager arrested on a road in Sorsogon just happened to have mixed up with
them one authentic Gasul tank that belonged to Petron.
The only point left is the question of the liability of the stockholders and members of the
board of directors of Bicol Gas with respect to the charge of unlawfully filling up a steel
cylinder or tank that belonged to Petron. The Court of Appeals ruled that they should be
charged along with the Bicol Gas employees who were pointed to as directly involved in
overt acts constituting the offense.1avvphi1
Bicol Gas is a corporation. As such, it is an entity separate and distinct from the persons of
its officers, directors, and stockholders. It has been held, however, that corporate officers or
employees, through whose act, default or omission the corporation commits a crime, may
themselves be individually held answerable for the crime.15
Jose claimed in his affidavit that, when he negotiated the swapping of captured cylinders
with Bicol Gas, its manager, petitioner Audie Llona, claimed that he would be consulting with
the owners of Bicol Gas about it. Subsequently, Bicol Gas declined the offer to swap
cylinders for the reason that the owners wanted to send their captured cylinders to
Batangas. The Court of Appeals seized on this as evidence that the employees of Bicol Gas
acted under the direct orders of its owners and that "the owners of Bicol Gas have full
control of the operations of the business."16
The "owners" of a corporate organization are its stockholders and they are to be
distinguished from its directors and officers. The petitioners here, with the exception of
Audie Llona, are being charged in their capacities as stockholders of Bicol Gas. But the Court
of Appeals forgets that in a corporation, the management of its business is generally vested
in its board of directors, not its stockholders.17 Stockholders are basically investors in a
corporation. They do not have a hand in running the day-to-day business operations of the
corporation unless they are at the same time directors or officers of the corporation. Before
a stockholder may be held criminally liable for acts committed by the corporation, therefore,
it must be shown that he had knowledge of the criminal act committed in the name of the
corporation and that he took part in the same or gave his consent to its commission,
whether by action or inaction.
The finding of the Court of Appeals that the employees "could not have committed the
crimes without the consent, [abetment], permission, or participation of the owners of Bicol
Gas"18 is a sweeping speculation especially since, as demonstrated above, what was
involved was just one Petron Gasul tank found in a truck filled with Bicol Gas tanks. Although
the KPE manager heard petitioner Llona say that he was going to consult the owners of Bicol
Gas regarding the offer to swap additional captured cylinders, no indication was given as to
which Bicol Gas stockholders Llona consulted. It would be unfair to charge all the
stockholders involved, some of whom were proved to be minors. 19 No evidence was
presented establishing the names of the stockholders who were charged with running the
operations of Bicol Gas. The complaint even failed to allege who among the stockholders sat
in the board of directors of the company or served as its officers.
The Court of Appeals of course specifically mentioned petitioner stockholder Manuel C.
Espiritu, Jr. as the registered owner of the truck that the KPE manager brought to the police
for investigation because that truck carried a tank of Petron Gasul. But the act that R.A. 623
punishes is the unlawful filling up of registered tanks of another. It does not punish the act of
transporting such tanks. And the complaint did not allege that the truck owner connived with
those responsible for filling up that Gasul tank with Bicol Gas LPG.

WHEREFORE, the Court REVERSES and SETS ASIDE the Decision of the Court of Appeals in
CA-G.R. SP 87711 dated October 17, 2005 as well as its Resolution dated January 6, 2006,
the Resolutions of the Secretary of Justice dated March 11, 2004 and August 31, 2004, and
the Order of the Office of the Regional State Prosecutor, Region V, dated February 19, 2003.
The Court REINSTATES the Resolution of the Office of the Provincial Prosecutor of Sorsogon in
I.S. 2001-9231 (inadvertently referred in the Resolution itself as I.S. 2001-9234), dated
February 26, 2002. The names of petitioners Manuel C. Espiritu, Jr., Freida F. Espititu, Carlo F.
Espiritu, Rafael F. Espiritu, Rolando M. Mirabuna, Hermilyn A. Mirabuna, Kim Roland A.
Mirabuna, Kaye Ann A. Mirabuna, Ken Ryan A. Mirabuna, Juanito P. De Castro, Geronima A.
Almonite and Manuel C. Dee are ORDERED excluded from the charge.
SO ORDERED.

G.R. No. 173807

April 16, 2009

JAIME U. GOSIACO, Petitioner,

vs.
LETICIA CHING and EDWIN CASTA, Respondents.
DECISION
TINGA, J.:
The right to recover due and demandable pecuniary obligations incurred by juridical persons
such as corporations cannot be impaired by procedural rules. Our rules of procedure
governing the litigation of criminal actions for violation of Batas Pambansa Blg. 22 (B.P. 22)
have given the appearance of impairing such substantive rights, and we take the
opportunity herein to assert the necessary clarifications.
Before us is a Rule 45 petition1 which seeks the reversal of the Decision2 of the Court of
Appeals in CA-GR No. 29488. The Court of Appeals' decision affirmed the decision 3 of the
Regional Trial Court of Pasig, Branch 68 in Criminal Case No. 120482. The RTC's decision
reversed the decision4 of the Metropolitan Trial Court of San Juan, Branch 58 in Criminal Case
No. 70445 which involved a charge of violation of B.P. Blg. 22 against respondents Leticia
Ching (Ching) and Edwin Casta (Casta).
On 16 February 2000, petitioner Jaime Gosiaco (petitioner) invested P8,000,000.00 with ASB
Holdings, Inc. (ASB) by way of loan. The money was loaned to ASB for a period of 48 days
with interest at 10.5% which is equivalent toP112,000.00. In exchange, ASB through its
Business Development Operation Group manager Ching, issued DBS checks no. 0009980577
and 0009980578 for P8,000,000.00 and P112,000.00 respectively. The checks, both signed
by Ching, were drawn against DBS Bank Makati Head Office branch. ASB, through a letter
dated 31 March 2000, acknowledged that it owed petitioner the abovementioned amounts. 5
Upon maturity of the ASB checks, petitioner went to the DBS Bank San Juan Branch to
deposit the two (2) checks. However, upon presentment, the checks were dishonored and
payments were refused because of a stop payment order and for insufficiency of funds.
Petitioner informed respondents, through letters dated 6 and 10 April 2000, 6 about the
dishonor of the checks and demanded replacement checks or the return of the money
placement but to no avail. Thus, petitioner filed a criminal complaint for violation of B.P. Blg.
22 before the Metropolitan Trial Court of San Juan against the private respondents.
Ching was arraigned and tried while Casta remained at large. Ching denied liability and
claimed that she was a mere employee of ASB. She asserted that she did not have
knowledge as to how much money ASB had in the banks. Such responsibility, she claimed
belonged to another department.
On 15 December 2000, petitioner moved7 that ASB and its president, Luke Roxas, be
impleaded as party defendants. Petitioner, then, paid the corresponding docket fees.
However, the MTC denied the motion as the case had already been submitted for final
decision.8
On 8 February 2001, the MTC acquitted Ching of criminal liability but it did not absolve her
from civil liability. The MTC ruled that Ching, as a corporate officer of ASB, was civilly liable
since she was a signatory to the checks.9
Both petitioner and Ching appealed the ruling to the RTC. Petitioner appealed to the RTC on
the ground that the MTC failed to hold ASB and Roxas either jointly or severally liable with
Ching. On the other hand, Ching moved for a reconsideration which was subsequently

denied. Thereafter, she filed her notice of appeal on the ground that she should not be held
civilly liable for the bouncing checks because they were contractual obligations of ASB.
On 12 July 2005, the RTC rendered its decision sustaining Ching's appeal. The RTC affirmed
the MTCs ruling which denied the motion to implead ASB and Roxas for lack of jurisdiction
over their persons. The RTC also exonerated Ching from civil liability and ruled that the
subject obligation fell squarely on ASB. Thus, Ching should not be held civilly liable. 10
Petitioner filed a petition for review with the Court of Appeals on the grounds that the RTC
erred in absolving Ching from civil liability; in upholding the refusal of the MTC to implead
ASB and Roxas; and in refusing to pierce the corporate veil of ASB and hold Roxas liable.
On 19 July 2006, the Court of Appeals affirmed the decision of the RTC and stated that the
amount petitioner sought to recover was a loan made to ASB and not to Ching. Roxas
testimony further bolstered the fact that the checks issued by Ching were for and in behalf
of ASB. The Court of Appeals ruled that ASB cannot be impleaded in a B.P. Blg. 22 case since
it is not a natural person and in the case of Roxas, he was not the subject of a preliminary
investigation. Lastly, the Court of Appeals ruled that there was no need to pierce the
corporate veil of ASB since none of the requisites were present. 11
Hence this petition.
Petitioner raised the following issues: (1) is a corporate officer who signed a bouncing check
civilly liable under B.P. Blg. 22; (2) can a corporation be impleaded in a B.P. Blg. 22 case; and
(3) is there a basis to pierce the corporate veil of ASB?
B.P. Blg. 22 is popularly known as the Bouncing Checks Law. Section 1 of B.P. Blg. 22
provides:
xxx xxx xxx
Where the check is drawn by a corporation, company or entity, the person or persons, who
actually signed the check in behalf of such drawer shall be liable under this Act.
B.P. Blg. 22 was enacted to address the rampant issuance of bouncing checks as payment
for pre-existing obligations. The circulation of bouncing checks adversely affected
confidence in trade and commerce. The State criminalized such practice because it was
deemed injurious to public interests12 and was found to be pernicious and inimical to public
welfare.13 B.P. Blg. 22 punishes the act of making and issuing bouncing checks. It is the act
itself of issuing the checks which is considered malum prohibitum. The law is an offense
against public order and not an offense against property.14 It penalizes the issuance of a
check without regard to its purpose. It covers all types of checks. 15 Even checks that were
issued as a form of deposit or guarantee were held to be within the ambit of B.P. Blg.
22.161avvphi1.zw+
When a corporate officer issues a worthless check in the corporate name he may be held
personally liable for violating a penal statute.17 The statute imposes criminal penalties on
anyone who with intent to defraud another of money or property, draws or issues a check on
any bank with knowledge that he has no sufficient funds in such bank to meet the check on
presentment.18 Moreover, the personal liability of the corporate officer is predicated on the
principle that he cannot shield himself from liability from his own acts on the ground that it
was a corporate act and not his personal act.19 As we held in Llamado v. Court of Appeals:20
Petitioner's argument that he should not be held personally liable for the amount of the
check because it was a check of the Pan Asia Finance Corporation and he signed the same in
his capacity as Treasurer of the corporation, is also untenable. The third paragraph of
Section 1 of BP Blg. 22 states: "Where the check is drawn by a corporation, company or

entity, the person or persons who actually signed the check in behalf of such drawer shall be
liable under this Act."
The general rule is that a corporate officer who issues a bouncing corporate check can only
be held civilly liable when he is convicted. In the recent case of Bautista v. Auto Plus Traders
Inc.,21 the Court ruled decisively that the civil liability of a corporate officer in a B.P. Blg. 22
case is extinguished with the criminal liability. We are not inclined through this case to revisit
so recent a precedent, and the rule of stare decisis precludes us to discharge Ching of any
civil liability arising from the B.P. Blg. 22 case against her, on account of her acquittal in the
criminal charge.
We recognize though the bind entwining the petitioner. The records clearly show that it is
ASB is civilly obligated to petitioner. In the various stages of this case, petitioner has been
proceeding from the
premise that he is unable to pursue a separate civil action against ASB itself for the recovery
of the amounts due from the subject checks. From this premise, petitioner sought to implead
ASB as a defendant to the B.P. Blg. 22 case, even if such case is criminal in nature. 22
What supplied the notion to the petitioner that he was unable to pursue a separate civil
action against ASB? He cites the Revised Rules on Criminal Procedure, particularly the
provisions involving B.P. Blg. 22 cases, which state that:
Rule 111, Section 1Institution of criminal and civil action.
xxx
(b) The criminal action for violation of Batas Pambansa Blg. 22 shall be deemed to include
the corresponding civil action. No reservation to file such civil action separately shall be
allowed.
Upon filing of the aforesaid joint criminal and civil actions, the offended party shall pay in full
the filing fees based on the amount of the check involved, which shall be considered as the
actual damages claimed. Where the complainant or information also seeks to recover
liquidated, moral, nominal, temperate or exemplary damages, the offended party shall pay
the filing fees based on the amounts alleged therein. If the amounts are not so alleged but
any of these damages are subsequently awarded by the court, the filing fees based on the
amount awarded shall constitute a first lien on the judgment.
Where the civil action has been filed separately and trial thereof has not yet commenced, it
may be consolidated with the criminal action upon application with the court trying the latter
case. If the application is granted, the trial of both actions shall proceed in accordance with
section 2 of this Rule governing consolidation of the civil and criminal actions. 23
We are unable to agree with petitioner that he is entitled to implead ASB in the B.P. Blg. 22
case, or any other corporation for that matter, even if the Rules require the joint trial of both
the criminal and civil liability. A basic maxim in statutory construction is that the
interpretation of penal laws is strictly construed against the State and liberally construed
against the accused. Nowhere in B.P. Blg. 22 is it provided that a juridical person may be
impleaded as an accused or defendant in the prosecution for violations of that law, even in
the litigation of the civil aspect thereof.
Nonetheless, the substantive right of a creditor to recover due and demandable obligations
against a debtor-corporation cannot be denied or diminished by a rule of procedure.
Technically, nothing in Section 1(b) of Rule 11 prohibits the reservation of a separate civil
action against the juridical person on whose behalf the check was issued. What the rules
prohibit is the reservation of a separate civil

action against the natural person charged with violating B.P. Blg. 22, including such
corporate officer who had signed the bounced check.
In theory the B.P. Blg. 22 criminal liability of the person who issued the bouncing check in
behalf of a corporation stands independent of the civil liability of the corporation itself, such
civil liability arising from the Civil Code. B.P. Blg. 22 itself fused this criminal liability of the
signer of the check in behalf of the corporation with the corresponding civil liability of the
corporation itself by allowing the complainant to recover such civil liability not from the
corporation, but from the person who signed the check in its behalf. Prior to the
amendments to our rules on criminal procedure, it though clearly was permissible to pursue
the criminal liability against the signatory, while going after the corporation itself for the civil
liability.
However, with the insistence under the amended rules that the civil and criminal liability
attaching to the bounced check be pursued jointly, the previous option to directly pursue the
civil liability against the person who incurred the civil obligationthe corporation itselfis no
longer that clear. In theory, the implied institution of the civil case into the criminal case for
B.P. Blg. 22 should not affect the civil liability of the corporation for the same check, since
such implied institution concerns the civil liability of the signatory, and not of the
corporation.
Let us pursue this point further. B.P. Blg. 22 imposes a distinct civil liability on the signatory
of the check which is distinct from the civil liability of the corporation for the amount
represented from the check. The civil liability attaching to the signatory arises from the
wrongful act of signing the check despite the insufficiency of funds in the account, while the
civil liability attaching to the corporation is itself the very obligation covered by the check or
the consideration for its execution. Yet these civil liabilities are mistaken to be indistinct. The
confusion is traceable to the singularity of the amount of each.
If we conclude, as we should, that under the current Rules of Criminal Procedure, the civil
action that is impliedly instituted in the B.P. Blg. 22 action is only the civil liability of the
signatory, and not that of the corporation itself, the distinctness of the cause of action
against the signatory and that against the corporation is rendered beyond dispute. It follows
that the actions involving these liabilities should be adjudged according to their respective
standards and merits. In the B.P. Blg. 22 case, what the trial court should determine whether
or not the signatory had signed the check with knowledge of the insufficiency of funds or
credit in the bank account, while in the civil case the trial court should ascertain whether or
not the obligation itself
is valid and demandable. The litigation of both questions could, in theory, proceed
independently and simultaneously without being ultimately conclusive on one or the other.
It might be argued that under the current rules, if the signatory were made liable for the
amount of the check by reason of the B.P. Blg. 22 case, such signatory would have the
option of recovering the same amount from the corporation. Yet that prospect does not
ultimately satisfy the ends of justice. If the signatory does not have sufficient assets to
answer for the amount of the checka distinct possibility considering the occasional largescale transactions engaged in by corporations the corporation would not be subsidiarily
liable to the complainant, even if it in truth the controversy, of which the criminal case is just
a part, is traceable to the original obligation of the corporation. While the Revised Penal
Code imposes subsidiary civil liability to corporations for criminal acts engaged in by their
employees in the discharge of their duties, said subsidiary liability applies only to
felonies,24and not to crimes penalized by special laws such as B.P. Blg. 22. And nothing in

B.P. Blg. 22 imposes such subsidiary liability to the corporation in whose name the check is
actually issued. Clearly then, should the check signatory be unable to pay the obligation
incurred by the corporation, the complainant would be bereft of remedy unless the right of
action to collect on the liability of the corporation is recognized and given flesh.
There are two prevailing concerns should civil recovery against the corporation be pursued
even as the B.P. Blg. 22 case against the signatory remains extant. First, the possibility that
the plaintiff might be awarded the amount of the check in both the B.P. Blg. 22 case and in
the civil action against the corporation. For obvious reasons, that should not be permitted.
Considering that petitioner herein has no chance to recover the amount of the check
through the B.P. Blg. 22 case, we need not contend with that possibility through this case.
Nonetheless, as a matter of prudence, it is best we refer the matter to the Committee on
Rules for the formulation of proper guidelines to prevent that possibility.
The other concern is over the payment of filing fees in both the B.P. Blg. 22 case and the civil
action against the corporation. Generally, we see no evil or cause for distress if the plaintiff
were made to pay filing fees based on the amount of the check in both the B.P. Blg. 22 case
and the civil action. After all, the plaintiff therein made the deliberate option to file two
separate cases, even if the recovery of the amounts of the check against the corporation
could evidently be pursued through the civil action alone.
Nonetheless, in petitioners particular case, considering the previous legal confusion on
whether he is authorized to file the civil case against ASB, he should, as a matter of equity,
be exempted from paying the filing fees based on the amount of the checks should he
pursue the civil action against ASB. In a similar vein and for a similar reason, we likewise find
that petitioner should not be barred by prescription should he file the civil action as the
period should not run from the date the checks were issued but from the date this decision
attains finality. The courts should not be bound strictly by the statute of limitations or the
doctrine of laches when to do so, manifest wrong or injustice would result. 25
WHEREFORE, the petition is DENIED, without prejudice to the right of petitioner Jaime U.
Gosiaco to pursue an independent civil action against ASB Holdings Inc. for the amount of
the subject checks, in accordance with the terms of this decision. No pronouncements as to
costs.
Let a copy of this Decision be REFERRED to the Committee on Revision of the Rules for the
formulation of the formal rules of procedure to govern the civil action for the recovery of the
amount covered by the check against the juridical person which issued it.
SO ORDERED.

G. R. No. 164317
February 6, 2006
ALFREDO CHING, Petitioner,
vs.
THE SECRETARY OF JUSTICE, ASST. CITY PROSECUTOR ECILYN BURGOS-VILLAVERT,
JUDGE EDGARDO SUDIAM of the Regional Trial Court, Manila, Branch 52; RIZAL
COMMERCIAL BANKING CORP. and THE PEOPLE OF THE PHILIPPINES, Respondents.
DECISION
CALLEJO, SR., J.:
Before the Court is a petition for review on certiorari of the Decision 1 of the Court of Appeals
(CA) in CA-G.R. SP No. 57169 dismissing the petition for certiorari, prohibition and
mandamus filed by petitioner Alfredo Ching, and its Resolution2 dated June 28, 2004 denying
the motion for reconsideration thereof.
Petitioner was the Senior Vice-President of Philippine Blooming Mills, Inc. (PBMI). Sometime
in September to October 1980, PBMI, through petitioner, applied with the Rizal Commercial
Banking Corporation (respondent bank) for the issuance of commercial letters of credit to
finance its importation of assorted goods.3
Respondent bank approved the application, and irrevocable letters of credit were issued in
favor of petitioner. The goods were purchased and delivered in trust to PBMI. Petitioner
signed 13 trust receipts4 as surety, acknowledging delivery of the following goods:
T/R
Nos.

Date
Granted

Maturity
Date

Principal

1845

12-05-80

03-05-81

P1,596,470.05

1853

12-08-80

03-06-81

P198,150.67

3,000 pcs. (15 bundles)

Calorized Lance Pipes

1824

11-28-80

02-26-81

P707,879.71

One Lot High Fired

Refractory Tundish
Bricks

1798

11-21-80

02-19-81

P835,526.25

5 cases spare parts for

CCM

1808

11-21-80

02-19-81

P370,332.52

200 pcs. ingot moulds

2042

01-30-81

04-30-81

P469,669.29

High Fired Refractory

Nozzle Bricks

1801

11-21-80

02-19-81

P2,001,715.17

1857

12-09-80

03-09-81

P197,843.61

Description of Goods

79.9425 M/T "SDK"

Brand Synthetic
Graphite Electrode

Synthetic Graphite
Electrode [with]
tapered pitch filed
nipples
3,000 pcs. (15 bundles
calorized lance pipes [)]

1895

12-17-80

03-17-81

P67,652.04

Spare parts for

Spectrophotometer

1911

12-22-80

03-20-81

P91,497.85

50 pcs. Ingot moulds

2041

01-30-81

04-30-81

P91,456.97

50 pcs. Ingot moulds

2099

02-10-81

05-11-81

P66,162.26

8 pcs. Kubota Rolls for

rolling mills

2100

02-10-81

05-12-81

P210,748.00

Spare parts for

Lacolaboratory
Equipment5

Under the receipts, petitioner agreed to hold the goods in trust for the said bank, with
authority to sell but not by way of conditional sale, pledge or otherwise; and in case such
goods were sold, to turn over the proceeds thereof as soon as received, to apply against the
relative acceptances and payment of other indebtedness to respondent bank. In case the
goods remained unsold within the specified period, the goods were to be returned to
respondent bank without any need of demand. Thus, said "goods, manufactured products or
proceeds thereof, whether in the form of money or bills, receivables, or accounts separate
and capable of identification" were respondent banks property.
When the trust receipts matured, petitioner failed to return the goods to respondent bank, or
to return their value amounting to P6,940,280.66 despite demands. Thus, the bank filed a
criminal complaint for estafa6 against petitioner in the Office of the City Prosecutor of Manila.
After the requisite preliminary investigation, the City Prosecutor found probable cause estafa
under Article 315, paragraph 1(b) of the Revised Penal Code, in relation to Presidential
Decree (P.D.) No. 115, otherwise known as the Trust Receipts Law. Thirteen (13) Informations
were filed against the petitioner before the Regional Trial Court (RTC) of Manila. The cases
were docketed as Criminal Cases No. 86-42169 to 86-42181, raffled to Branch 31 of said
court.
Petitioner appealed the resolution of the City Prosecutor to the then Minister of Justice. The
appeal was dismissed in a Resolution7 dated March 17, 1987, and petitioner moved for its
reconsideration. On December 23, 1987, the Minister of Justice granted the motion, thus
reversing the previous resolution finding probable cause against petitioner. 8 The City
Prosecutor was ordered to move for the withdrawal of the Informations.
This time, respondent bank filed a motion for reconsideration, which, however, was denied
on February 24, 1988.9The RTC, for its part, granted the Motion to Quash the Informations
filed by petitioner on the ground that the material allegations therein did not amount to
estafa.10
In the meantime, the Court rendered judgment in Allied Banking Corporation v.
Ordoez,11 holding that the penal provision of P.D. No. 115 encompasses any act violative of
an obligation covered by the trust receipt; it is not limited to transactions involving goods
which are to be sold (retailed), reshipped, stored or processed as a component of a product
ultimately sold. The Court also ruled that "the non-payment of the amount covered by a
trust receipt is an act violative of the obligation of the entrustee to pay." 12
On February 27, 1995, respondent bank re-filed the criminal complaint for estafa against
petitioner before the Office of the City Prosecutor of Manila. The case was docketed as I.S.
No. 95B-07614.
Preliminary investigation ensued. On December 8, 1995, the City Prosecutor ruled that there
was no probable cause to charge petitioner with violating P.D. No. 115, as petitioners
liability was only civil, not criminal, having signed the trust receipts as surety. 13 Respondent

bank appealed the resolution to the Department of Justice (DOJ) via petition for review,
alleging that the City Prosecutor erred in ruling:
1. That there is no evidence to show that respondent participated in the
misappropriation of the goods subject of the trust receipts;
2. That the respondent is a mere surety of the trust receipts; and
3. That the liability of the respondent is only civil in nature. 14
On July 13, 1999, the Secretary of Justice issued Resolution No. 250 15 granting the petition
and reversing the assailed resolution of the City Prosecutor. According to the Justice
Secretary, the petitioner, as Senior Vice-President of PBMI, executed the 13 trust receipts
and as such, was the one responsible for the offense. Thus, the execution of said receipts is
enough to indict the petitioner as the official responsible for violation of P.D. No. 115. The
Justice Secretary also declared that petitioner could not contend that P.D. No. 115 covers
only goods ultimately destined for sale, as this issue had already been settled in Allied
Banking Corporation v. Ordoez,16where the Court ruled that P.D. No. 115 is "not limited to
transactions in goods which are to be sold (retailed), reshipped, stored or processed as a
component of a product ultimately sold but covers failure to turn over the proceeds of the
sale of entrusted goods, or to return said goods if unsold or not otherwise disposed of in
accordance with the terms of the trust receipts."
The Justice Secretary further stated that the respondent bound himself under the terms of
the trust receipts not only as a corporate official of PBMI but also as its surety; hence, he
could be proceeded against in two (2) ways: first, as surety as determined by the Supreme
Court in its decision in Rizal Commercial Banking Corporation v. Court of Appeals; 17 and
second, as the corporate official responsible for the offense under P.D. No. 115, via criminal
prosecution. Moreover, P.D. No. 115 explicitly allows the prosecution of corporate officers
"without prejudice to the civil liabilities arising from the criminal offense." Thus, according to
the Justice Secretary, following Rizal Commercial Banking Corporation, the civil liability
imposed is clearly separate and distinct from the criminal liability of the accused under P.D.
No. 115.
Conformably with the Resolution of the Secretary of Justice, the City Prosecutor filed 13
Informations against petitioner for violation of P.D. No. 115 before the RTC of Manila. The
cases were docketed as Criminal Cases No. 99-178596 to 99-178608 and consolidated for
trial before Branch 52 of said court. Petitioner filed a motion for reconsideration, which the
Secretary of Justice denied in a Resolution18 dated January 17, 2000.
Petitioner then filed a petition for certiorari, prohibition and mandamus with the CA, assailing
the resolutions of the Secretary of Justice on the following grounds:
1. THE RESPONDENTS ARE ACTING WITH AN UNEVEN HAND AND IN FACT, ARE
ACTING OPPRESSIVELY AGAINST ALFREDO CHING WHEN THEY ALLOWED HIS
PROSECUTION DESPITE THE FACT THAT NO EVIDENCE HAD BEEN PRESENTED TO
PROVE HIS PARTICIPATION IN THE ALLEGED TRANSACTIONS.
2. THE RESPONDENT SECRETARY OF JUSTICE COMMITTED AN ACT IN GRAVE ABUSE
OF DISCRETION AND IN EXCESS OF HIS JURISDICTION WHEN THEY CONTINUED
PROSECUTION OF THE PETITIONER DESPITE THE LENGTH OF TIME INCURRED IN THE
TERMINATION OF THE PRELIMINARY INVESTIGATION THAT SHOULD JUSTIFY THE
DISMISSAL OF THE INSTANT CASE.
3. THE RESPONDENT SECRETARY OF JUSTICE AND ASSISTANT CITY PROSECUTOR
ACTED IN GRAVE ABUSE OF DISCRETION AMOUNTING TO AN EXCESS OF
JURISDICTION WHEN THEY CONTINUED THE PROSECUTION OF THE PETITIONER
DESPITE LACK OF SUFFICIENT BASIS.19
In his petition, petitioner incorporated a certification stating that "as far as this Petition is
concerned, no action or proceeding in the Supreme Court, the Court of Appeals or different
divisions thereof, or any tribunal or agency. It is finally certified that if the affiant should
learn that a similar action or proceeding has been filed or is pending before the Supreme

Court, the Court of Appeals, or different divisions thereof, of any other tribunal or agency, it
hereby undertakes to notify this Honorable Court within five (5) days from such notice." 20
In its Comment on the petition, the Office of the Solicitor General alleged that A.
THE HONORABLE SECRETARY OF JUSTICE CORRECTLY RULED THAT PETITIONER
ALFREDO CHING IS THE OFFICER RESPONSIBLE FOR THE OFFENSE CHARGED AND
THAT THE ACTS OF PETITIONER FALL WITHIN THE AMBIT OF VIOLATION OF P.D. [No.]
115 IN RELATION TO ARTICLE 315, PAR. 1(B) OF THE REVISED PENAL CODE.
B.
THERE IS NO MERIT IN PETITIONERS CONTENTION THAT EXCESSIVE DELAY HAS
MARRED THE CONDUCT OF THE PRELIMINARY INVESTIGATION OF THE CASE,
JUSTIFYING ITS DISMISSAL.
C.
THE PRESENT SPECIAL CIVIL ACTION FOR CERTIORARI, PROHIBITION AND MANDAMUS
IS NOT THE PROPER MODE OF REVIEW FROM THE RESOLUTION OF THE DEPARTMENT
OF JUSTICE. THE PRESENT PETITION MUST THEREFORE BE DISMISSED. 21
On April 22, 2004, the CA rendered judgment dismissing the petition for lack of merit, and
on procedural grounds. On the procedural issue, it ruled that (a) the certification of nonforum shopping executed by petitioner and incorporated in the petition was defective for
failure to comply with the first two of the three-fold undertakings prescribed in Rule 7,
Section 5 of the Revised Rules of Civil Procedure; and (b) the petition for certiorari,
prohibition and mandamus was not the proper remedy of the petitioner.
On the merits of the petition, the CA ruled that the assailed resolutions of the Secretary of
Justice were correctly issued for the following reasons: (a) petitioner, being the Senior VicePresident of PBMI and the signatory to the trust receipts, is criminally liable for violation of
P.D. No. 115; (b) the issue raised by the petitioner, on whether he violated P.D. No. 115 by
his actuations, had already been resolved and laid to rest in Allied Bank Corporation v.
Ordoez;22 and (c) petitioner was estopped from raising the
City Prosecutors delay in the final disposition of the preliminary investigation because he
failed to do so in the DOJ.
Thus, petitioner filed the instant petition, alleging that:
I
THE COURT OF APPEALS ERRED WHEN IT DISMISSED THE PETITION ON THE GROUND
THAT THE CERTIFICATION OF NON-FORUM SHOPPING INCORPORATED THEREIN WAS
DEFECTIVE.
II
THE COURT OF APPEALS ERRED WHEN IT RULED THAT NO GRAVE ABUSE OF
DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION WAS COMMITTED BY
THE SECRETARY OF JUSTICE IN COMING OUT WITH THE ASSAILED RESOLUTIONS. 23
The Court will delve into and resolve the issues seriatim.
The petitioner avers that the CA erred in dismissing his petition on a mere technicality. He
claims that the rules of procedure should be used to promote, not frustrate, substantial
justice. He insists that the Rules of Court should be construed liberally especially when, as in
this case, his substantial rights are adversely affected; hence, the deficiency in his
certification of non-forum shopping should not result in the dismissal of his petition.
The Office of the Solicitor General (OSG) takes the opposite view, and asserts that
indubitably, the certificate of non-forum shopping incorporated in the petition before the CA
is defective because it failed to disclose essential facts about pending actions concerning
similar issues and parties. It asserts that petitioners failure to comply with the Rules of
Court is fatal to his petition. The OSG cited Section 2, Rule 42, as well as the ruling of this
Court in Melo v. Court of Appeals.24

We agree with the ruling of the CA that the certification of non-forum shopping petitioner
incorporated in his petition before the appellate court is defective. The certification reads:
It is further certified that as far as this Petition is concerned, no action or proceeding in the
Supreme Court, the Court of Appeals or different divisions thereof, or any tribunal or agency.
It is finally certified that if the affiant should learn that a similar action or proceeding has
been filed or is pending before the Supreme Court, the Court of Appeals, or different
divisions thereof, of any other tribunal or agency, it hereby undertakes to notify this
Honorable Court within five (5) days from such notice.25
Under Section 1, second paragraph of Rule 65 of the Revised Rules of Court, the petition
should be accompanied by a sworn certification of non-forum shopping, as provided in the
third paragraph of Section 3, Rule 46 of said Rules. The latter provision reads in part:
SEC. 3. Contents and filing of petition; effect of non-compliance with requirements. The
petition shall contain the full names and actual addresses of all the petitioners and
respondents, a concise statement of the matters involved, the factual background of the
case and the grounds relied upon for the relief prayed for.
xxx
The petitioner shall also submit together with the petition a sworn certification that he has
not theretofore commenced any other action involving the same issues in the Supreme
Court, the Court of Appeals or different divisions thereof, or any other tribunal or agency; if
there is such other action or proceeding, he must state the status of the same; and if he
should thereafter learn that a similar action or proceeding has been filed or is pending
before the Supreme Court, the Court of Appeals, or different divisions thereof, or any other
tribunal or agency, he undertakes to promptly inform the aforesaid courts and other tribunal
or agency thereof within five (5) days therefrom. xxx
Compliance with the certification against forum shopping is separate from and independent
of the avoidance of forum shopping itself. The requirement is mandatory. The failure of the
petitioner to comply with the foregoing requirement shall be sufficient ground for the
dismissal of the petition without prejudice, unless otherwise provided. 26
Indubitably, the first paragraph of petitioners certification is incomplete and unintelligible.
Petitioner failed to certify that he "had not heretofore commenced any other action involving
the same issues in the Supreme Court, the Court of Appeals or the different divisions thereof
or any other tribunal or agency" as required by paragraph 4, Section 3, Rule 46 of the
Revised Rules of Court.
We agree with petitioners contention that the certification is designed to promote and
facilitate the orderly administration of justice, and therefore, should not be interpreted with
absolute literalness. In his works on the Revised Rules of Civil Procedure, former Supreme
Court Justice Florenz Regalado states that, with respect to the contents of the certification
which the pleader may prepare, the rule of substantial compliance may be availed
of.27However, there must be a special circumstance or compelling reason which makes the
strict application of the requirement clearly unjustified. The instant petition has not alleged
any such extraneous circumstance. Moreover, as worded, the certification cannot even be
regarded as substantial compliance with the procedural requirement. Thus, the CA was not
informed whether, aside from the petition before it, petitioner had commenced any other
action involving the same issues in other tribunals.
On the merits of the petition, the CA ruled that the petitioner failed to establish that the
Secretary of Justice committed grave abuse of discretion in finding probable cause against
the petitioner for violation of estafa under Article 315, paragraph 1(b) of the Revised Penal
Code, in relation to P.D. No. 115. Thus, the appellate court ratiocinated:
Be that as it may, even on the merits, the arguments advanced in support of the petition are
not persuasive enough to justify the desired conclusion that respondent Secretary of Justice
gravely abused its discretion in coming out with his assailed Resolutions. Petitioner posits
that, except for his being the Senior Vice-President of the PBMI, there is no iota of evidence
that he was a participes crimines in violating the trust receipts sued upon; and that his

liability, if at all, is purely civil because he signed the said trust receipts merely as a xxx
surety and not as the entrustee. These assertions are, however, too dull that they cannot
even just dent the findings of the respondent Secretary, viz:
"x x x it is apropos to quote section 13 of PD 115 which states in part, viz:
xxx If the violation or offense is committed by a corporation, partnership, association or
other judicial entities, the penalty provided for in this Decree shall be imposed upon the
directors, officers, employees or other officials or persons therein responsible for the offense,
without prejudice to the civil liabilities arising from the criminal offense.
"There is no dispute that it was the respondent, who as senior vice-president of PBM,
executed the thirteen (13) trust receipts. As such, the law points to him as the official
responsible for the offense. Since a corporation cannot be proceeded against criminally
because it cannot commit crime in which personal violence or malicious intent is required,
criminal action is limited to the corporate agents guilty of an act amounting to a crime and
never against the corporation itself (West Coast Life Ins. Co. vs. Hurd, 27 Phil. 401; Times,
[I]nc. v. Reyes, 39 SCRA 303). Thus, the execution by respondent of said receipts is enough
to indict him as the official responsible for violation of PD 115.
"Parenthetically, respondent is estopped to still contend that PD 115 covers only goods
which are ultimately destined for sale and not goods, like those imported by PBM, for use in
manufacture. This issue has already been settled in the Allied Banking Corporation case,
supra, where he was also a party, when the Supreme Court ruled that PD 115 is not limited
to transactions in goods which are to be sold (retailed), reshipped, stored or processed as a
component or a product ultimately sold but covers failure to turn over the proceeds of the
sale of entrusted goods, or to return said goods if unsold or disposed of in accordance with
the terms of the trust receipts.
"In regard to the other assigned errors, we note that the respondent bound himself under
the terms of the trust receipts not only as a corporate official of PBM but also as its surety. It
is evident that these are two (2) capacities which do not exclude the other. Logically, he can
be proceeded against in two (2) ways: first, as surety as determined by the Supreme Court
in its decision in RCBC vs. Court of Appeals, 178 SCRA 739; and, secondly, as the corporate
official responsible for the offense under PD 115, the present case is an appropriate remedy
under our penal law.
"Moreover, PD 115 explicitly allows the prosecution of corporate officers without prejudice
to the civil liabilities arising from the criminal offense thus, the civil liability imposed on
respondent in RCBC vs. Court of Appeals case is clearly separate and distinct from his
criminal liability under PD 115."28
Petitioner asserts that the appellate courts ruling is erroneous because (a) the transaction
between PBMI and respondent bank is not a trust receipt transaction; (b) he entered into the
transaction and was sued in his capacity as PBMI Senior Vice-President; (c) he never
received the goods as an entrustee for PBMI, hence, could not have committed any
dishonesty or abused the confidence of respondent bank; and (d) PBMI acquired the goods
and used the same in operating its machineries and equipment and not for resale.
The OSG, for its part, submits a contrary view, to wit:
34. Petitioner further claims that he is not a person responsible for the offense allegedly
because "[b]eing charged as the Senior Vice-President of Philippine Blooming Mills (PBM),
petitioner cannot be held criminally liable as the transactions sued upon were clearly
entered into in his capacity as an officer of the corporation" and that [h]e never received the
goods as an entrustee for PBM as he never had or took possession of the goods nor did he
commit dishonesty nor "abuse of confidence in transacting with RCBC." Such argument is
bereft of merit.
35. Petitioners being a Senior Vice-President of the Philippine Blooming Mills does not
exculpate him from any liability. Petitioners responsibility as the corporate official of PBM
who received the goods in trust is premised on Section 13 of P.D. No. 115, which provides:

Section 13. Penalty Clause. The failure of an entrustee to turn over the proceeds of the sale
of the goods, documents or instruments covered by a trust receipt to the extent of the
amount owing to the entruster or as appears in the trust receipt or to return said goods,
documents or instruments if they were not sold or disposed of in accordance with the terms
of the trust receipt shall constitute the crime of estafa, punishable under the provisions of
Article Three hundred and fifteen, paragraph one (b) of Act Numbered Three thousand eight
hundred and fifteen, as amended, otherwise known as the Revised Penal Code. If the
violation or offense is committed by a corporation, partnership, association or other juridical
entities, the penalty provided for in this Decree shall be imposed upon the directors, officers,
employees or other officials or persons therein responsible for the offense, without prejudice
to the civil liabilities arising from the criminal offense. (Emphasis supplied)
36. Petitioner having participated in the negotiations for the trust receipts and having
received the goods for PBM, it was inevitable that the petitioner is the proper corporate
officer to be proceeded against by virtue of the PBMs violation of P.D. No. 115. 29
The ruling of the CA is correct.
In Mendoza-Arce v. Office of the Ombudsman (Visayas),30 this Court held that the acts of a
quasi-judicial officer may be assailed by the aggrieved party via a petition for certiorari and
enjoined (a) when necessary to afford adequate protection to the constitutional rights of the
accused; (b) when necessary for the orderly administration of justice; (c) when the acts of
the officer are without or in excess of authority; (d) where the charges are manifestly false
and motivated by the lust for vengeance; and (e) when there is clearly no prima facie case
against the accused.31 The Court also declared that, if the officer conducting a preliminary
investigation (in that case, the Office of the Ombudsman) acts without or in excess of his
authority and resolves to file an Information despite the absence of probable cause, such act
may be nullified by a writ of certiorari.32
Indeed, under Section 4, Rule 112 of the 2000 Rules of Criminal Procedure, 33 the Information
shall be prepared by the Investigating Prosecutor against the respondent only if he or she
finds probable cause to hold such respondent for trial. The Investigating Prosecutor acts
without or in excess of his authority under the Rule if the Information is filed against the
respondent despite absence of evidence showing probable cause therefor. 34 If the Secretary
of Justice reverses the Resolution of the Investigating Prosecutor who found no probable
cause to hold the respondent for trial, and orders such prosecutor to file the Information
despite the absence of probable cause, the Secretary of Justice acts contrary to law, without
authority and/or in excess of authority. Such resolution may likewise be nullified in a petition
for certiorari under Rule 65 of the Revised Rules of Civil Procedure. 35
A preliminary investigation, designed to secure the respondent against hasty, malicious and
oppressive prosecution, is an inquiry to determine whether (a) a crime has been committed;
and (b) whether there is probable cause to believe that the accused is guilty thereof. It is a
means of discovering the person or persons who may be reasonably charged with a crime.
Probable cause need not be based on clear and convincing evidence of guilt, as the
investigating officer acts upon probable cause of reasonable belief. Probable cause implies
probability of guilt and requires more than bare suspicion but less than evidence which
would justify a conviction. A finding of probable cause needs only to rest on evidence
showing that more likely than not, a crime has been committed by the suspect. 36
However, while probable cause should be determined in a summary manner, there is a need
to examine the evidence with care to prevent material damage to a potential accuseds
constitutional right to liberty and the guarantees of freedom and fair play 37 and to protect
the State from the burden of unnecessary expenses in prosecuting alleged offenses and
holding trials arising from false, fraudulent or groundless charges. 38
In this case, petitioner failed to establish that the Secretary of Justice committed grave
abuse of discretion in issuing the assailed resolutions. Indeed, he acted in accord with law
and the evidence.
Section 4 of P.D. No. 115 defines a trust receipt transaction, thus:

Section 4. What constitutes a trust receipt transaction. A trust receipt transaction, within the
meaning of this Decree, is any transaction by and between a person referred to in this
Decree as the entruster, and another person referred to in this Decree as entrustee,
whereby the entruster, who owns or holds absolute title or security interests over certain
specified goods, documents or instruments, releases the same to the possession of the
entrustee upon the latters execution and delivery to the entruster of a signed document
called a "trust receipt" wherein the entrustee binds himself to hold the designated goods,
documents or instruments in trust for the entruster and to sell or otherwise dispose of the
goods, documents or instruments with the obligation to turn over to the entruster the
proceeds thereof to the extent of the amount owing to the entruster or as appears in the
trust receipt or the goods, documents or instruments themselves if they are unsold or not
otherwise disposed of, in accordance with the terms and conditions specified in the trust
receipt, or for other purposes substantially equivalent to any of the following:
1. In case of goods or documents, (a) to sell the goods or procure their sale; or (b) to
manufacture or process the goods with the purpose of ultimate sale; Provided, That,
in the case of goods delivered under trust receipt for the purpose of manufacturing or
processing before its ultimate sale, the entruster shall retain its title over the goods
whether in its original or processed form until the entrustee has complied fully with
his obligation under the trust receipt; or (c) to load, unload, ship or otherwise deal
with them in a manner preliminary or necessary to their sale; or
2. In the case of instruments a) to sell or procure their sale or exchange; or b) to
deliver them to a principal; or c) to effect the consummation of some transactions
involving delivery to a depository or register; or d) to effect their presentation,
collection or renewal.
The sale of goods, documents or instruments by a person in the business of selling goods,
documents or instruments for profit who, at the outset of the transaction, has, as against the
buyer, general property rights in such goods, documents or instruments, or who sells the
same to the buyer on credit, retaining title or other interest as security for the payment of
the purchase price, does not constitute a trust receipt transaction and is outside the purview
and coverage of this Decree.
An entrustee is one having or taking possession of goods, documents or instruments under a
trust receipt transaction, and any successor in interest of such person for the purpose of
payment specified in the trust receipt agreement.39 The entrustee is obliged to: (1) hold the
goods, documents or instruments in trust for the entruster and shall dispose of them strictly
in accordance with the terms and conditions of the trust receipt; (2) receive the proceeds in
trust for the entruster and turn over the same to the entruster to the extent of the amount
owing to the entruster or as appears on the trust receipt; (3) insure the goods for their total
value against loss from fire, theft, pilferage or other casualties; (4) keep said goods or
proceeds thereof whether in money or whatever form, separate and capable of identification
as property of the entruster; (5) return the goods, documents or instruments in the event of
non-sale or upon demand of the entruster; and (6) observe all other terms and conditions of
the trust receipt not contrary to the provisions of the decree. 40
The entruster shall be entitled to the proceeds from the sale of the goods, documents or
instruments released under a trust receipt to the entrustee to the extent of the amount
owing to the entruster or as appears in the trust receipt, or to the return of the goods,
documents or instruments in case of non-sale, and to the enforcement of all other rights
conferred on him in the trust receipt; provided, such are not contrary to the provisions of the
document.41
In the case at bar, the transaction between petitioner and respondent bank falls under the
trust receipt transactions envisaged in P.D. No. 115. Respondent bank imported the goods
and entrusted the same to PBMI under the trust receipts signed by petitioner, as entrustee,
with the bank as entruster. The agreement was as follows:
And in consideration thereof, I/we hereby agree to hold said goods in trust for the said BANK
as its property with liberty to sell the same within ____days from the date of the execution of

this Trust Receipt and for the Banks account, but without authority to make any other
disposition whatsoever of the said goods or any part thereof (or the proceeds) either by way
of conditional sale, pledge or otherwise.
I/we agree to keep the said goods insured to their full value against loss from fire, theft,
pilferage or other casualties as directed by the BANK, the sum insured to be payable in case
of loss to the BANK, with the understanding that the BANK is, not to be chargeable with the
storage premium or insurance or any other expenses incurred on said goods.
In case of sale, I/we further agree to turn over the proceeds thereof as soon as received to
the BANK, to apply against the relative acceptances (as described above) and for the
payment of any other indebtedness of mine/ours to the BANK. In case of non-sale within the
period specified herein, I/we agree to return the goods under this Trust Receipt to the BANK
without any need of demand.
I/we agree to keep the said goods, manufactured products or proceeds thereof, whether in
the form of money or bills, receivables, or accounts separate and capable of identification as
property of the BANK.42
It must be stressed that P.D. No. 115 is a declaration by legislative authority that, as a
matter of public policy, the failure of person to turn over the proceeds of the sale of the
goods covered by a trust receipt or to return said goods, if not sold, is a public nuisance to
be abated by the imposition of penal sanctions.43
The Court likewise rules that the issue of whether P.D. No. 115 encompasses transactions
involving goods procured as a component of a product ultimately sold has been resolved in
the affirmative in Allied Banking Corporation v. Ordoez.44 The law applies to goods used by
the entrustee in the operation of its machineries and equipment. The non-payment of the
amount covered by the trust receipts or the non-return of the goods covered by the receipts,
if not sold or otherwise not disposed of, violate the entrustees obligation to pay the amount
or to return the goods to the entruster.
In Colinares v. Court of Appeals,45 the Court declared that there are two possible situations in
a trust receipt transaction. The first is covered by the provision which refers to money
received under the obligation involving the duty to deliver it (entregarla) to the owner of the
merchandise sold. The second is covered by the provision which refers to merchandise
received under the obligation to return it (devolvera) to the owner. 46 Thus, failure of the
entrustee to turn over the proceeds of the sale of the goods covered by the trust receipts to
the entruster or to return said goods if they were not disposed of in accordance with the
terms of the trust receipt is a crime under P.D. No. 115, without need of proving intent to
defraud. The law punishes dishonesty and abuse of confidence in the handling of money or
goods to the prejudice of the entruster, regardless of whether the latter is the owner or not.
A mere failure to deliver the proceeds of the sale of the goods, if not sold, constitutes a
criminal offense that causes prejudice, not only to another, but more to the public interest. 47
The Court rules that although petitioner signed the trust receipts merely as Senior VicePresident of PBMI and had no physical possession of the goods, he cannot avoid prosecution
for violation of P.D. No. 115.
The penalty clause of the law, Section 13 of P.D. No. 115 reads:
Section 13. Penalty Clause. The failure of an entrustee to turn over the proceeds of the sale
of the goods, documents or instruments covered by a trust receipt to the extent of the
amount owing to the entruster or as appears in the trust receipt or to return said goods,
documents or instruments if they were not sold or disposed of in accordance with the terms
of the trust receipt shall constitute the crime of estafa, punishable under the provisions of
Article Three hundred and fifteen, paragraph one (b) of Act Numbered Three thousand eight
hundred and fifteen, as amended, otherwise known as the Revised Penal Code.1wphi1 If
the violation or offense is committed by a corporation, partnership, association or other
juridical entities, the penalty provided for in this Decree shall be imposed upon the directors,
officers, employees or other officials or persons therein responsible for the offense, without
prejudice to the civil liabilities arising from the criminal offense.

The crime defined in P.D. No. 115 is malum prohibitum but is classified as estafa under
paragraph 1(b), Article 315 of the Revised Penal Code, or estafa with abuse of confidence. It
may be committed by a corporation or other juridical entity or by natural persons. However,
the penalty for the crime is imprisonment for the periods provided in said Article 315, which
reads:
ARTICLE 315. Swindling (estafa). Any person who shall defraud another by any of the
means mentioned hereinbelow shall be punished by:
1st. The penalty of prision correccional in its maximum period to prision mayor in its
minimum period, if the amount of the fraud is over 12,000 pesos but does not exceed
22,000 pesos; and if such amount exceeds the latter sum, the penalty provided in
this paragraph shall be imposed in its maximum period, adding one year for each
additional 10,000 pesos; but the total penalty which may be imposed shall not
exceed twenty years. In such cases, and in connection with the accessory penalties
which may be imposed and for the purpose of the other provisions of this Code, the
penalty shall be termed prision mayor or reclusion temporal, as the case may be;
2nd. The penalty of prision correccional in its minimum and medium periods, if the
amount of the fraud is over 6,000 pesos but does not exceed 12,000 pesos;
3rd. The penalty of arresto mayor in its maximum period to prision correccional in its
minimum period, if such amount is over 200 pesos but does not exceed 6,000 pesos;
and
4th. By arresto mayor in its medium and maximum periods, if such amount does not exceed
200 pesos, provided that in the four cases mentioned, the fraud be committed by any of the
following means; xxx
Though the entrustee is a corporation, nevertheless, the law specifically makes the officers,
employees or other officers or persons responsible for the offense, without prejudice to the
civil liabilities of such corporation and/or board of directors, officers, or other officials or
employees responsible for the offense. The rationale is that such officers or employees are
vested with the authority and responsibility to devise means necessary to ensure
compliance with the law and, if they fail to do so, are held criminally accountable; thus, they
have a responsible share in the violations of the law. 48
If the crime is committed by a corporation or other juridical entity, the directors, officers,
employees or other officers thereof responsible for the offense shall be charged and
penalized for the crime, precisely because of the nature of the crime and the penalty
therefor. A corporation cannot be arrested and imprisoned; hence, cannot be penalized for a
crime punishable by imprisonment.49 However, a corporation may be charged and
prosecuted for a crime if the imposable penalty is fine. Even if the statute prescribes both
fine and imprisonment as penalty, a corporation may be prosecuted and, if found guilty, may
be fined.50
A crime is the doing of that which the penal code forbids to be done, or omitting to do what
it commands. A necessary part of the definition of every crime is the designation of the
author of the crime upon whom the penalty is to be inflicted. When a criminal statute
designates an act of a corporation or a crime and prescribes punishment therefor, it creates
a criminal offense which, otherwise, would not exist and such can be committed only by the
corporation. But when a penal statute does not expressly apply to corporations, it does not
create an offense for which a corporation may be punished. On the other hand, if the State,
by statute, defines a crime that may be committed by a corporation but prescribes the
penalty therefor to be suffered by the officers, directors, or employees of such corporation or
other persons responsible for the offense, only such individuals will suffer such
penalty.51 Corporate officers or employees, through whose act, default or omission the
corporation commits a crime, are themselves individually guilty of the crime. 52
The principle applies whether or not the crime requires the consciousness of wrongdoing. It
applies to those corporate agents who themselves commit the crime and to those, who, by
virtue of their managerial positions or other similar relation to the corporation, could be

deemed responsible for its commission, if by virtue of their relationship to the corporation,
they had the power to prevent the act.53 Moreover, all parties active in promoting a crime,
whether agents or not, are principals.54 Whether such officers or employees are benefited by
their delictual acts is not a touchstone of their criminal liability. Benefit is not an operative
fact.
In this case, petitioner signed the trust receipts in question. He cannot, thus, hide behind the
cloak of the separate corporate personality of PBMI. In the words of Chief Justice Earl Warren,
a corporate officer cannot protect himself behind a corporation where he is the actual,
present and efficient actor.55
IN LIGHT OF ALL THE FOREGOING, the petition is DENIED for lack of merit. Costs against the
petitioner.
SO ORDERED.